Financial Analysis: Assessing Panini Ltd's Performance (2018-2019)

This report provides a financial analysis of Panini Ltd, evaluating its performance in 2018 and 2019 using various financial ratios. It discusses the roles of accounting and finance departments within a company, highlighting their functions such as financial accounting, management accounting, investment, financing, dividend, and working capital management. The report also explores different sources of funds available to small and medium enterprises for business expansion. The analysis of Panini Ltd includes an examination of gross profit margin, operating profit margin, ROCE, current ratio, quick ratio, inventory turnover days, and debtor’s collection period, identifying changes and potential causes for shifts in financial activities between the two years. The report suggests measures to improve the company's productivity and stability. Desklib offers a range of similar solved assignments and past papers for students.

Financial Decision
Making

Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
Part a: Explanation of two main departments related to accounting -.........................................3
Part b: Discussion about several financial sources of funds available to small and medium
enterprises for expanding the business:.......................................................................................5
Task 2...............................................................................................................................................6
a. Different financial ratios for evaluating the performance of Panini ltd for the two years:......6
b. Discussion over the condition of Panini ltd in carrying out its financial transactions with the
help of financial ratios in year 2018 and 2019 and all the possible causes for change in
financial activities over the two years:........................................................................................9
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Financial decision making is a process in which decision are taken by financial manager by
focusing on the borrowing and allocation of money required for financial decisions. The
represented report consists of two tasks with their sub parts; these parts talk about departments of
the firm which is finance and accounts with their key roles in the business activities. And the
report mentioned several sources of finance available for firm the market place. A comparison of
financial statements of Panini ltd with the help of financial ratios are performed to evaluate the
condition of the firm and identify loopholes in their business activities for the year 2018 and
2019. This report includes variety of suggestive measures to tackle the situation of the company
and also helps in increasing the productivity and stability in the long run (Liu, 2018).
TASK 1
Part a: Explanation of two main departments related to accounting -
1.Accounting Department: The accounting department is the segment in a corporation that is in
charge of financial statement preparation, general ledger maintenance, bill payment, client bill
preparation, wage bill, and other duties. In other sayings, they are in charge of regulating the
company's overall financial front. Any firm related activity, whether an activity related to home
or a large global corporation, cannot carry out its workings without the help of a proper system
of accounts. This division help in providing a foundation for evaluating the performance and
accountability throughout the firm.
a) Financial accounting function: The function is related to keep the financial records of the
company by providing assistance to businesses in maintaining a correct and current record of the
day to day financial activities of the business for example- purchases of supply, sales of goods
and services, receipts and payments etc. This function helps accountant to analyse all the
financial transactions related to the payments due to make sure if the company receives revenue
and earns profits as well (Liao, 2018). For preparing the different budgets such as company,
department and project budget, the department uses financial data.
b) Management accounting function: The accounting department helps in ensuring that no
mismanagement or wastage of resources occurs with the help of tracking the financial
transactions of the business. It entails examining the company's current economic means,

anticipated earnings, and corporate objectives and using this data to forecast future business
advancement.
c) Tax function: Tax function of accounting department entails reviewing invoices to determine
the authenticity of the charges, determining payment schedule, and making payments that the
company owes to different customers and suppliers. Accountants ensure that the company abides
by government and private sector rules, guidelines, and laws concerning taxation, financial
accounting, and employee salaries.
d) Auditing function: With the help of auditing function of accounting department, accountant
has ease in conducting financial audits of the business, recognising differences and implementing
corrective measures (Li and Rao, 2022). Auditing function entails conducting frequent financial
evaluations of the company's departments in order to analyse their performance and make
changes to decrease waste, boost efficiency, and optimize spending.
2.Finance Department: The Finance Department is the component of a corporation that is in
charge of procuring finances for the corporation, dealing with cash flow inside the firm, and
preparing for the use of money on numerous assets. It is the section of a company accountable
for maintaining the appropriate investment management and financial control required to sustain
all business operations. Finance is one of the crucial bases for any firm and a crucial constituent
of any fruitful corporation. A finance department holds various functions in itself that is
performed in and outside of the firm. The financial management puts a substantial impact on the
performance and victory of the firm. Keeping a tight eye on the funding role is vital for a
company's seamless running.
a) Investment function: The division is accountable for the best selection of investments and
management of available assets of the firm. Aside from immovable assets, this division must be
associated with current assets. The current assets of the company play a more important role than
the fixed assets as all the day to day workings are to be managed by the working capital for
maximizing profitability (Leandro and Zettelmeyer, 2018). Investment decisions are sometimes
not only devoting capital to long-term assets, but also making decisions about the funds we get
from selling the assets which are less financially viable and gainful.
b) Financing function: The function that converts raw accounting entries into relevant, useable,
and comparative financial statements is known as financial reporting and analysis. The finance
department focuses on the organizational progress by frequently monitoring and assessing vital

figures critical for the growth of the firm. This will almost definitely contain a summary of all
funding sources, expenditures and reserves available for future use (excluding those already
committed and planned for the current period), as well as some non-financial data (McCoy,
2019). And are typically conveyed to managers in a well format which is quite logical as well.
c) Dividend function: Income or a desirable outcome is a basic area shared by all firms.
However, in the event of success, the core role of a monetary manager is to make the choice
whether to distribute all profits to shareholders, retain all profits, or distribute part of the profits
to stakeholder while retaining the other 50 percent in the company. It is the role of the finance
manager to determine an effective dividend policy that optimises the current vale in market of
firm (He, Ma and Zhang, 2020). As an outcome, an optimal dividend pay-out ratio is calculated.
In the event of profitability, it is common practise to pay out regular dividends. Another
possibility is to give existing stockholders bonus shares.
d) Working capital function: The working capital function of finance department is in charge of
treatment of all cash flows in and out of an organisation and guaranteeing that suitable resources
are available to meet the firm's everyday operations. This section also contains the company's
credit and collections guidelines for its clients, which ensure that the payment of vendors and
creditors are on time, as well as that the firm is paid appropriately and on time.
Part b: Discussion about several financial sources of funds available to small and medium
enterprises for expanding the business:
Corporation is dealing with the creation and supply of commodities and facilities to meet
societal needs. Business requires money to perform multiple activities. Finance is thus referred to
as the "life blood" of any business. Business finance refers the need of funds to carry out the
various activities of the firm. The businessperson's initial investment contribution is not always
adequate to sustain all of the business's financial needs. A corporation can obtain funds from a
number of sources. Each source has distinct features that must be clearly addressed in order to
recognise the best possible source of raising funds. For all firms, there is different sources of
funding available according to their nature and requirements (Hassan, Khan and Paltrinieri,
2019). A decision on which source to employ may be made on the state, purpose, cost, and
related risk. For example, if there is a demand for the funds is generated to fulfil their needs
related to fixed assets, they have a need for long term loans and capital which can be get form
owned or attained capital. Likewise, short term sources are utilized to fulfil the daily needs of the

corporation. There are different sources of funds available in the economy to fulfil the needs
such as retained earnings, trade credit, factoring, lease financing, public deposits, commercial
paper, equity and preference shares, debentures, commercial banks and financial institutions.
Task 2
a. Different financial ratios for evaluating the performance of Panini ltd for the two years:
(iii)ROCE:

b. Discussion over the condition of Panini ltd in carrying out its financial transactions with the
help of financial ratios in year 2018 and 2019 and all the possible causes for change in
financial activities over the two years:
(i) Gross profit margin – This is a financial ratio which showcase how efficiently a firm
is carrying out its operations in the given period of time with optimum utilisation of
available resources. In year 2018, Panini had 35% gross profit margin but in 2019, it
has 28.39% which is less than previous year. This shows that the firm has low
efficiency in carrying out its business activities (Furceri and Ostry, 2019). So, firm
needs to be effectively evaluated all its past accounts and transactions and identify the
areas which causes gap and inefficiency in the work. And also, there is a need to
control the expenditures of the firm and try to use the limited resources efficiently.
(ii) Operating profit margin- This financial ratio is helpful in reflecting the percentage of
profit generated through the company’s business activities in the form of profitability
or performance ratio. This profit margin is also referred as EBIT (Earnings Before
Interest and Tax) Margin. In 2019, businesses must also cut their operating expenses
because they reduce the company's earnings. It is also vital to use finances wisely
with limited resources so that the organisation may make the best use of available
resources.
(iii) ROCE- Return on capital employed is the ratio which shows how efficient firm is in
effectively utilising its capital. ROCE is computed by dividing earnings before
interest and taxes (EBIT) by capital employed (Plank and Doblinger, 2018). The
decrease in the ratio here implies that Panini ltd is generating a poorer return on
invested capital and, as a result, will be unable to fulfil the previous year's profit
forecast in 2019.
(iv)Current ratio- The current ratio also provides information about the company's overall debt
burden. In comparison to 2018, the company's short-term obligations are lower this year,
indicating that Panini maintains good liquidity in the business world.
(v)Quick ratio- The Quick Ratio compares the value of a company's cash balance and current
assets to its near-term obligations to determine its short-term liquidity (Belev and DiBartolomeo,
2021). The quick ratio determines whether a company has enough cash to pay off its immediate
liabilities after liquidating its liquid current assets — the higher the ratio, the better off the

company is in terms of liquidity. If the ratio is low, the company should approach with caution,
and the next step might be to evaluate how and how rapidly new investment may be obtained.
(vi) Inventory turnover days- The inventory turnover ratio measures how well a company
manages incoming stock from vendors and exiting goods from storage to the rest of the supply
network. Inventory turnover ratio is a ratio that illustrates how many times a company's
inventory has been sold and replaced over a given time period. In the year 2019, inventory
turnover days maintains a good balance in their stocks which is quite helpful for firm in carrying
out its transaction with comparison to previous year.
(vii)Debtor’s collection period- Accounts receivable refers to those days which is taken by the
business to receive payments from its clients. If the debtor is more in number it indicates that the
company must inject more funds in its unpaid trade receivables resource, whereas a lower
collection day shows that their investment is low in account receivable and thus more cash is
available for other means (Arif and Shabbir, 2019). In the year 2019, Panini receive payment in
42.54 days which is quite more than the previous year that indicates the firm’s revenue are taking
more time to come in the accounts of company.
(viii)Creditor’s collection period- The usual time taken by a company to settle its credits with
trade sellers is measured by an indicator (accounts payable). Thus, it provides data about
payment habits as well as whether a business is fully utilising accessible credit facilities. In the
year 2018, company takes 29.66 more days to settle its debts with comparison to 2019, which is
a good indication about the capability of the firm.
CONCLUSION
Form the represented report, it can be concluded that the Panini ltd has variety of sources
available for funds to carry out its operations. The report talks about the accounting and finance
department and their key roles in business activities to maximize profit and controlling financial
transactions. Here with the assistance of Panini’s financial accounts, financial ratios are
calculated to analyse the condition of the firm for the year 2018 and 2019. The report suggests
that the firm is more efficient in 2018 but maintains good liquidity and stock in 2019 with
comparison to previous year. So, after identifying the drawbacks and loop areas, precautionary
measures are suggested for efficient working and profit maximization of the firm.

REFERENCES
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