Analysis of Financial Decision Making & Ratios for Business Growth

This report assesses financial decision-making in organizations, focusing on the roles, duties, and functions of finance and accounting. It examines financing options for growth, development, and expansion, using Panini Ltd, a medium-sized bread production company in the UK, as a case study. The report computes and analyzes financial ratios for 2018 and 2019, including gross profit margin, operating profit margin, return on capital employed, current ratio, quick ratio, inventory turnover days, receivable collection period, and payable payment period. It also discusses potential reasons for changes in these ratios, such as diminishing operating profit margins, and explores strategies like debts, retained earnings, and equity for funding business expansion. Desklib provides access to similar solved assignments and past papers for students.

FINANCIAL
DECISION MAKING

Table of Contents
INTRODUCTION.......................................................................................................................3
TASK 1.....................................................................................................................................3
1.1 Assess the necessity of Finance and Accounting related roles, duties and functions in a
organisation.......................................................................................................................................3
1.2 State different ways that would help in financing a organisation for growth, development and
expansion related purposes...............................................................................................................5
TASK 2.....................................................................................................................................6
A) Compute ratios represented as under:..........................................................................................6
(B) State possible circumstances for witnessed changes in financial ratios calculated for 2 years......7
CONCLUSION...........................................................................................................................8
REFERENCES............................................................................................................................9

INTRODUCTION
The report prepared as under takes in account ideologies and work management in areas
such as accounting as well as finance-based organisations. It further renders a understanding
which relates to necessary functions, duties and roles being played by managers in a business.
The report then describes the operational work performed by Panini Ltd company that is a
medium size business company and would ne dealing in production of bread for super markets
and competitive marketplaces in UK country (Al-Sartawi and Reyad, 2019). It can be explained
as planning and growing its operations which would be assisting in computation of ratios as
below and providing a better and clear picture or image about the business over years. It also
would be fruitful in finding methods which would generate funds and then use them for
expansion as well as growth keeping futuristic situations in mind.
TASK 1
1.1 Assess the necessity of Finance and Accounting related roles, duties and functions in a
organisation.
Finance: It can be explained as a process which takes in account collection of funds for
carrying out required and expected functions such as planning of budgets, raising funds or any
sort of capital for any kind of expenses. It can be explained as channelling different funds in
form of loans, credits or invested amount to those of economic enterprises which is needed by
most of them or can be put to effective productive uses. Some functions are stated as under:
 Planning finance: It can be defined as planning of cash and funds being collected,
gathered and assembled at one place. It also counts ways which would assist Panini Ltd
firm for investment of funds in right quantity at right place at right time which would
further lead them to a profitable and fruitful situation.
 Raising funds: Generating required finances and revenues is mandatory in every firm
whether it is based on small or medium or large scale. In case of Panini ltd company it
has been noticed that for expanding its business and for contributing in growth of desired
areas, organisation requires adequate amount of funds for developing proper plans and
implementing such relevant actions as well (Azmat, Jain and Michaux, 2021).
Duties of finance: There are certain duties assigned in every area for better opportunities
and growth of the business. Some duties assigned in such areas are defined as under:
 Providing strategic assistance: Finance can be explained as a base ground which helps to
plan strategies, plans and well-informed action which would be contributing in growth
and development of enterprise chosen for improving the work performance asserted over
uncovered areas as well.
 Planning of taxation: Interest and tax would be affecting performance and work related to
running of business if they are not managed and covered on a timely basis. Such elements
are necessary in Panini ltd organisation which would be helpful for managers and
investors to have a better understanding of liquidity, solvency and profitability of
business keeping positioning in mind which they acquire in the economic environment.
Role of finance: It is helpful in order to understand in what ways finance would serve as
an important activity in every firm in which some roles are stated as under:

 Managing external business situation: Every firm is affected by many elements and
factors where some of them are overpowering in nature for example external factors that
can only be monitored and cannot be controlled. In instance of Panini ltd company, it has
to take special care of such causes which might lead to problematic situations and serve
as a hurdle in efficient and effective working of a company (Cossa, Madaleno and Mota,
2018).
 Implementing decisions: It is very necessary and mandatory in case of every company for
implementing its planned decisions in right manner at right time. It further gives an idea
about process being followed by Panini ltd firm for operating decisions in demanded
areas and controlling them on a regular basis. Decision making is solely accountable and
responsible for outcomes recorded during the success of a business or firm.
Accounting: It can be described as gathering, sorting and putting data at one place which
would make sense and serve the company in expected and desired manner as well. Development
of financial records and reports which would help business in providing much needed guidance
for the management of funds being collected and looking after limited as well as scarce resources
too. The main aim, goal of accounting is to evaluate the performance being rendered by company
and the working employees for that point of time. Hence, it would help in assessing the
positioning of business in competitive environment and cash inflow as well as outflow that takes
place over a period of time. It further serves as a tool and technique for investors and sponsors
for predicting whether the result obtained by them would turn out to be fruitful or not.
Duties of Accounting:
 Having proper control on Budgets prepared: Budgets play a role which would be helpful
in every enterprise and further would be providing assistance in preparation of same in
due course of time. It also helps in implementation of best available and suitable
preference for Panini ltd company and monitoring it on a regular basis as well.
 Finance: It can be explained as a vast and broader concept when compared in context of
accounting that is linked with operational activities such as credit giving, making
investment and capital markets as well. Finance thus reflects how the funds would be
managed and could be generated that are demanded in upcoming future for carrying out
useful operations for the growth and success journey of chosen firm (Finkler, Calabrese
and Smith, 2022).
 Forecasting finance related risks and threats: There are different duties that must be
executed in a Panini ltd company and accounting also proves to be best theory for
carrying out such accurate purposes. It is helpful in examination of risk predicted and
prevailing in a running business and also finding ways which contribute in generating
fund for further growth and expansion of business.
Functions of Accounting: There are various functions that are being performed and are useful for
Panini ltd company such as explained under:
 Examining the performances rendered: It helps in conducting a proper analysis for the
firm which would prove to be fruitful in managing and maintaining long life cycle of
company in an economy.
 Recording valuable transactions: It is very necessary for Panini organisation to have a
record of all transactions which took place during the running of business that would
provide a better and clearer picture of business which is carrying out its working
operations in a competitive economy.
Role of Accounting:

 Keeping a track of revenue, profit, income and expenses as well: It helps the company to
have a better understanding as where the income is being spent and the money is put into
better uses for better results. It also helps to find out potential reasons, issue and causes
which are liable for unpredictable expenses and costs as well.
 It provides assistance in decision making process: Accounting is helpful in facilitating
decision making by choosing the best opportunity among available options with Panini
ltd firm. It would also help to understand which preferred choice would serve their aims
and objectives set in right manner over other available choices.
1.2 State different ways that would help in financing a organisation for growth, development and
expansion related purposes.
There are many ways that would be useful for enterprises in generating funds for expanding
and growth-related events. The aim of Panini ltd firm relates to expansion of marketplaces and
activities on a larger scale hence it would be demanding methods which would be contributing in
such demanded operations. Some options that serve as a fruitful technique are as under:
 Debts: It is counted as a cheaper and affordable source for generating funds that would be
helpful in earning a higher return for investors who have invested their amount in equity.
If the debts that is being chosen by the company results in increasing the net positioning
of business in related environment, then it must be counted as positive and profitable and
thus it would also help to increase funds, profitability which then can be investment for
the development of enterprises. (Hutahayan, 2020).
 Retained earnings: It can be defined as earned income which could be used for covering
payments to be made to shareholders on a future based time. It can further be described
as income that was saved by the firm over a period of time. It would be useful for Panini
ltd company in asserting funds for areas such as research and development, that would be
ensuring the sustainability and stability of a company in marketplace and improve the
valuation of stock at competitive places in market. It further also indicates quantity of
equity that is being held on a collective basis in an enterprise. It would be more useful the
reason behind is that the company wouldn’t be demanding to search for options that
would help in assembling required funds. It is taken in account as best technique which
could provide wanted support towards the companies.
 Equity: It can be defined as a tool which would help in assessing the worth of enterprise
in economic environment and serving as a tool for working on areas that are linked with
development and growth of a business in near future. It is thus helpful for chosen
company to use such method for fostering required funds without raising the burden of
debt, loans and liabilities as well. Equity would be permitting in generating capital which
would be used for generation of funds and would be making better possible use of it
(Lewis, 2019). There is no load on firms that would be derived from banking institutions
or marketplaces. It would also help in increasing number of customers and employee
connection in running business for a longer lifecycle of enterprise.
TASK 2
A) Compute ratios represented as under:
(i) Gross profit margin: Gross profit/ Net sales * 100

2018: 3500/ 10000 * 100 = 35%
2019: 3265/ 11500 * 100 = 28.39%
(ii) Operating profit margin: Operating profit/ Net sales * 100
2018: 2765/ 10000* 100 = 27.65%
2019: 2305/ 11500* 100 = 20.04%
(iii) Return on capital employed: Earnings before interest and tax/ Share equity + Long term
liabilities * 100
2018: 2765/ 6755 * 100 = 40.93%
2019: 2305/ 8111* 100 = 28.41%
(iv) Current Ratio: Current assets/ Current liabilities
2018: 1175/ 970 = 1.211: 1
2019: 2110/ 512 = 4.12: 1
(v) Quick Ratio: Current assets – Inventory / Current liabilities
2018: 1175 – 350/ 970 = 0.85: 1
2019: 2110 – 675/ 512 = 2.80: 1
(vi) Inventory turnover days: Inventory / Cost of goods sold * 365
2018: 350 / 6500 * 365 = 19.65 days
2019: 674 / 8235 * 365 = 29.87 days
(vii) Receivable collection period: Average account receivables / Net credit sales * 365 days
2018: 760 / 10000* 365 = 27.74 Days
2019: 1340 / 11500* 365 = 42.53 Days
(viii) Payable payment period: Average account payable/ Cost of goods sold * 365 days
2018: 920 / 6500 * 365 = 51.661 Days
2019: 495 / 8235 * 365 = 6.010 Days
(B) State possible circumstances for witnessed changes in financial ratios calculated for 2 years.
(i) Reasons behind diminishing operating profit margin:

 Increasing operating expenses: Operating profit would diminish in certain manner if
the expense increases in context with Panini ltd company. It is necessary for business
to contribute in rising profit and decreasing costs.
 Diminishing sales activities by a firm over years: There are many issues as well as
reasons which can be held liable for a condition resulting a fall in operating revenues.
It might be the example of less sales that is being generated by Panini ltd firm in
coming year.
(ii) Possible circumstances for decreasing Gross profit margin:
 Another reason which can lead to affecting gross profit margin is markup strategies
and policies that are being set up by Panini ltd company.
 Increasing expenses which are linked to goods being sold by the firm might be
counted as a possible cause for declining Gross profit margin (Lo and Liao, 2021).
 Fall in selling rates of commodities and products without any decline in cost of goods
being sold by business can be said a reason for diminishing gross profit in Panini ltd
enterprise.
(iii) Reasons for Rising current ratio recorded between a time span of 2 years:
 Supervision of payables and receivables: Panini ltd organisation is expected to
manage its payables and receivables well in time which would help in increasing the
current ratio so far computed for 2 consecutive years.
 Covering debts and liabilities: It may not be possible for Panini company to cover its
loans, obligations and debts for paying off liabilities faster than the past records and
hence it might be a possible reason behind fluctuating current ratio in coming year.
(iv) Purposes behind increasing quick ratio in a company:
 Management of inventory turnover: Rising inventory turnover can be said as a reason
that would be identified in case of Panini ltd firm and thus it might result to be one of
the reason after rising quick ratio too.
 Increasing sales: There are conditions that would lead to rising level of sale margin in
a business over a period of time hence it might be same in case of Panini ltd too. Rise
in sales would disturb the quick ratio to influence in upcoming year.
(v) Responsible bases for Increasing inventory turnover days:
 Handling production scale: It is mandatory for Panini ltd firm for managing its
production level in the marketplaces because it would be affecting the working and
growth of companies in economic environment. Therefore, it is possible that this
might be one of the reasons behind rising inventory turnover days which have been
computed so far.
 Minimizing expenses or costs: There would be many chances when the expenditures
and costs incurred in journey of company would have been reduced which would
have affected level of inventory in Panini ltd company too. Thus, it can be held liable
against the growing inventory turnover.
 Excluding use of old inventory items: Inventory turnover days can be managed to
increase if the enterprise replaces unwanted and old machineries with new and
developed ones (Marchant and Harrison, 2020).
(vi) Reasons accountable for Rising collection period:
 Reducing efforts in money collection process: Rise in receivable collection period
would be due to lesser efforts which are made for collecting monetary funds by

Panini ltd organisation. Thus, it can also result to situations such as rising the level of
receivable collection time period.
(vii) Causes for diminishing Payable payment period in a business:
 Poor financial condition’s: Reason possible behind such situations can be bad
financial conditions and adverse credit policies as well as strategies too. In case of
present chosen company, it must focus on improving and working on finance related
areas and situations present in economy (Mirica, 2019).
(viii) Reasons accountable for falling Return on capital employed:
 Rising obligations: If debts and liabilities of an organisation rises it might lead to a
problematic condition for Panini ltd company as it would be affecting return on
capital employed in negative ways.
 Poor use of capital sources: It can be explained as one of the reasons behind declining
Return on capital employed In Panini ltd organisation. It can also be enhanced and
sources can be put to its best possible places for improving its effectiveness and
efficiency (Mirica, 2019).
CONCLUSION
From the above concluded report, it can be said that Accounting and financing serves as an
important function in managing activities as well as operations in case of every company. It has
many roles, functions and duties which are explained as above and which also help in improving
the performance beings served by the business for the time being. There are many ratios that are
being computed and which would help to form and carry out comparisons in connection to
previous performances according to their wants and expectations as well.

REFERENCES
Books and Journals
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