BM414 Financial Decision Making: A Detailed Report on Panini Ltd

This report provides a comprehensive financial analysis of Panini Ltd, evaluating the importance of accounting and finance functions within the company. It examines the duties and roles of these functions, along with potential sources of finance for small and medium-sized enterprises (SMEs) like Panini Ltd. The report includes a ratio analysis based on the company's financial statements for 2018 and 2019, offering commentary on Panini Ltd's financial performance, including gross profit margin, operating profit margin, return on capital employed, current ratio, quick ratio, inventory turnover, receivables collection period, and payables payment period. The analysis identifies areas of strength and weakness in the company's financial management and operational efficiency.

Financial Decision Making

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
TASK-1............................................................................................................................................3
Critical evaluation of the importance of accounting and finance function, duties and roles-.....3
Sources of finance to small and medium company-....................................................................5
TASK-2............................................................................................................................................6
A) Ratio calculation of Panini Ltd-.............................................................................................6
B) Comment on the company’s performance-.............................................................................8
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Financial decision-making is the process of analysing financial data for the purpose of
making it meaningful in order to make organizational decision. The report will be discussing
importance of accounting and financial functions for Panini Ltd. At the same time some
available sources of finance shall also be deciphered in context of the company. Then rations are
to be calculated for the entity using given financial statements.
TASK-1
Critical evaluation of the importance of accounting and finance function, duties and roles-
Both the accounting and finance department plays a crucial role within the working of the
company and its success. in case the accounting and finance function will not be working
appropriately then this will be affecting the working efficiency of the company.
Accounting- this is the department which is concerned with recording of all the financial
transaction in order to analyse and calculate the profit or loss which the company is facing
(Naim, 2022). This is necessary for the effective working of the company as in case the
accounting will not be managed in proper manner then this will be affecting the working
efficiency of the company. Within the working of Panini ltd accounting plays a crucial role and
function which improves the working efficiency of the business.
 The major function of accounting within Panini ltd is that it helps in evaluating the
working and performance of the business. This is pertaining to the fact that when all the
transactions are being recorded then this helps business in evaluating the fact that how
much performance has been improved.
 Along with this another function which accounting plays within the effective usage of
accounting is that it assists in making future projection and budgets for future
development. This is particularly assistive because accounting helps the business in
developing budgets and future forecast and this improves the working efficiency of the
business to a great extent.
 In addition to this, another function or the duty performed by accounting is systematic
tracking and summarising of the financial details of the company (Nyathi and et.al.,
2018). This is crucial for the business as when the proper accounts are being prepared
then this provides a base to Panini ltd and they can track the performance in better terms.

 Another role played by accounting within Panini ltd is that it assists in effective decision
making as well. This is pertaining to the fact that when the proper base is being created
then the company can take better decision and this will improve the working efficiency of
the company.
 Along with this another duty of the accounting function within Panini ltd is to have
effective financial control over the working of the company. The reason underlying this
fact is that when proper accounting role and principle will be followed then this will be
improving the working efficiency of the company to a great extent.
 In addition to this, the accounting and related information also plays a crucial role and
duty for the external users of information as well. This is pertaining to the fact that when
the proper accounts are being made then this improves the working efficiency of the
business and by referring to the accounting information (Akimova and et.al., 2019).
Hence, this will be providing the external users a proper base and then only they will
invest within the business.
 Moreover, another role played by accounts department of Panini ltd is keeping the track
record of all the inventory and the payable and receivable. this is very important for the
reason that in case all these elements will not be managed properly then it will be
affecting the working capital of the company. the reason underlying this fact is that when
the working capital management will be not ensured properly then this will be affecting
the efficiency to a great extent.
Finance- this is another department which is very essential for the business to be maintained.
this is pertaining to the fact that when the working of finance department will not be effective
then this will be having impact over the working of whole business. this is pertaining to the fact
that without finance not a single activity of the business can be done. The reason underlying this
fact is that when the working of the company will not be good then this will be affecting the
working efficiency of each and every department. the finance department also plays a crucial
role and duty within the operation of Panini ltd. these roles and duties are as follows-
 The most important and common role which finance department of Panini ltd is the
allocation of the finance to the various department. This is pertaining to the fact that
when the finance will not be equally allocated then this will be affecting the efficiency of
the business.

 Along with this another role played by finance department of Panini ltd is to provide the
necessary information relating to the business to other department as well (Huynh, 2021).
This is necessary for the reason that when the effective working of every department will
be present then this will be improving the working efficiency of the whole team.
 Another crucial duty of finance department of Panini ltd is to manage the cash flow of the
company. This is the most important element of the management of the business. In case
the cash flow will not be managed efficiently then this will be affecting the working
efficiency of the business and other department as well.
 Along with this another role being played by finance department of Panini ltd is the
finance administrator as well. This role involves the analysis of all the finance related
activities and this will be having better working efficiency and also the finance will be
managed optimally.
Thus, in the end it can be stated that the effective working of accounts and finance is very
important in order to evaluate and manage the working of the business. The reason underlying
this fact is that when the accounting and finance will be working in better manner then this will
be improving the efficiency of the business and the profitability as well (Zuo and Lin, 2022).
Along with this also, for the effective competitive working it is very important for Panini ltd that
they effectively work in better manner so that all other department work in better manner.
Sources of finance to small and medium company-
Over the time in the nation the corporate environment got developed and now a wide
number of small and medium sized organization are getting operated. For such entities who are
striving to expand their size are having such avenues or sources to raise funds.
Venture capital- Organizations like Panini Ltd who are having medium-sized entity may
get funds from this avenue. For expansion such investors offer funds to SMEs, as their name is
suggesting that they are ready to take venture in the market and for this purpose they provide
funds to such SMEs. They offer funds in reciprocation of share in the business ownership, it is
considered a good avenue since along with funds they also provide their precious guidance
(Walmsley, et al. 2018)
Export and trade finance- the small entities who are striving export line then it’s one of
the best alternative. They may get funds from various sources, such as now UKEF is also

providing funds which stands for United Kingdom Export Finance, to promote exports in the
nation.
Mezzanine financing- this is one the most attractive form of collecting finance for
expansion since this contains a hybrid nature. Where both equity and debt finance can be
acquired. It not only provides funds but also helps to reduce cost of capital of the entity. Here
one very attractive offers are also get extended, where the status of funds can be convertible so
there is no issue of control on business.
Funds from incubators- In UK there are a range of such incubating entities which are
providing funds to such SMEs who are striving to generate more funds in order to expand their
business size. Now in the nation there are more than 200 incubators who are supporting such
small sized entities and helping them to hike their size in order to ace expansion (Güleç and
Bektaş, 2019)
Growth capital- It is also known as expansion capital. It is given in general to stable
organization, who are preparing for making expansion. But for acquiring funds form this source
there is need to have strong current position in the market. If the entity is not having good current
position, then cannot get funds form the avenue.
TASK-2
A) Ratio calculation of Panini Ltd-
Particulars Formula 2018 2019
Revenue 10000 11500
Gross profit 3500 3265
Gross profit margin Gross profit/Revenue
from sales*100=
=3500/10000×100
= 35%
=3265/11500×100
= 28.39%
Operating profit 2765 2305
Revenue 10000 11500
Operating profit
margin
Operating
profit/revenue
generated form
2765/10000×100=
=27.65%
2305/11500×100=
=20.04%

sales×100=
Operating Profit for
the year
2765 2305
Total Assets 9725 10723
Current liabilities 970 512
Capital employed Total assets —
Current Liabilities
8755 10211
Return on Capital
employed for the
organization.
Operating profit /
Capital employed *
100=
2765 / 8755 * 100
= 31.58%
2305 / 10211 * 100
= 22.57%
Current Assets as per
books of account.
1175 2110
Current liabilities as
per books of account.
970 512
Current ratio =Current Assets /
Current Liabilities
1175 / 970 = 1.21
times
2110 / 512 = 4.12
times
Current Assets 1175 2110
Inventories 350 674
Quick Assets for the
year
=Current assets —
Inventories
825 1436
Current liabilities 970 512
Quick ratio for the
entity.
=Quick Assets /
Current Liabilities
825 / 970 = 0.85 times 1436 / 512 = 2.8 times
Inventory 350 674
Cost of Sales 6500 8235
Inventory Turnover
days for the entity.
Inventory / Cost of
Goods sold * 365
350 / 6500 × 365 674 / 8235 × 365

= 19.65 or 20 days = 29.87 or 30 days
Accounts receivables
for the year
760 1340
Net Sales revenue
generated
10000 11500
Receivables
Collection Period
Accounts Receivables
/ Net Sales revenue *
365
760 / 10000 * 365
= 27.74 or 28 days
1340 / 11500 * 365
= 42.53 or 43 days
Accounts Payables 920 495
Cost of Sales for the
year
6500 8235
Payables Payment
Period for the
organization.
Accounts Payables /
Cost of Sales * 365
920 / 6500 × 365
= 51.66 or 52 days
495 / 8235 × 365
= 21.94 or 22 days
B) Comment on the company’s performance-
The GPR of the entity is showing proportion between gross profit and revenue of the
entity generated form sales. Panini Ltd was having it around 35% in the year 2018 but it came
down in the year 2019. It shows that the company did not perform well, in the following year
even the total revenue had been higher yet the gross profit was not hiked which ultimately caused
a fall down in the ration.
The Operating profit margin for the year 2018 had been 27.65% but in the year 2019 it
was observed to be 20.04%. The key reason behind this fall down was again operational ability
of Panini Ltd. Now it is having operating profit margin more than twenty which can be called
good but due to poor performance of operations it got toppled (Sutarno, Mesran, 2019)
Return on capital employed which is known as ROCE. It evaluates that with which rate
the entity is making money on the deployed amount of capital. Here it is significant to know that
earlier it has been around 31.58% but later on in the year 2019 it came to 22.57% (Allen, 2020)
so there has been poor performance by the organization. So with this regard it can be said that

the entity did not perform good even the invested amount is not able to give enough returns in
reciprocation. In such situations there is huge concern to keep the investors satisfied. It would be
fair to say that the invested amount is now not being used properly since it is losing its ability to
return higher (Hatefi, 2019)
Current ratio for Panini Ltd shows status of current assets and current liability. It
evaluates that for paying one-rupee short term debt how much short term funds are available for
the entity. In the year 2018 (Boylan, Nesson and Philipps, 2018) it was having current ratio of
around 1.21 which was a matter of being worried since it is said that if it is around 1.5 then the
entity is safe to pay its short term liabilities but 1.21 it really raises sort of concerns. For the
following year it surged up to 4.12, that much high current ratio is also matter of concern since
there is possibility of misusing the funds.
Quick ratio of the organization shows that how much quick assets do they have to pay
their liabilities. It shows that current assets which can be converted into cash in limited time
frame. It is supposed that if it is 1 then good for the organization. For the company it was 0.85
for the year 2018 then surged to 2.8 for the following year. In the previous year there was
problematic situation for hem but keeping it higher is also not much good.
Inventory turnover days was 20 for the year 2018 and in the following year came up to
30, it deciphers that there had been issue of converting invested amount into inventory into cash.
There is need to ponder over operational efficiency since it reflects poor situation. It reflects that
in the previous year the organization was able to convert its inventory into cash in limited time
frame but it has lost that capacity in the following year. Now it is taking more time to generate
cash form the inventory, here it can be concluded that efficiency of the organization is getting
toppled (Sanjaya, 2019)
Receivable collection period in the year 2018 had been 28 days and it surged to 43
2019. It shows that the efficiency of collecting amount from the debtors was better in the year
2018 but now the entity is taking more time to do so. It is also affecting the working capital since
if the amount is being restricted to the debtors then there will be problems running business
operations.
Payable payment period for the entity for the year 2018 and 2019 was 52 and 22 days.
It reflects that the entity is now paying its debt quicker. This is a good way to utilize higher
availability of cash. But here is can be concluded that Panini Ltd is somehow losing opportunity

to use the available cash amount for its own betterment and hiking performance (Ali, Li, Jewel,
2018)
Here altogether it can be concluded that the ratios of the entity are showing its poor
performance considering various aspects and there is rigorous need to go for contemplation on its
operations so can make some changes in order to surge performance and eradicate perilous
aspects.
CONCLUSION
From the report above it can be concluded that financial decision-making is an essential
aspect for an organization. The report discussed importance of financial information. At the same
time some available avenues to generate funds. At the end of the report financial ratios have been
calculated for the years 2018 and 2019 for Panini Ltd and their implications were also presented
to the fullest length.

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