Financial Decision Making: Accounting, Finance & Panini Ltd. Analysis

This report evaluates the importance of accounting and finance functions within a business organization, focusing on their role in tracking expenditures, incomes, and providing financial information for effective decision-making. It discusses various sources of finance available to small and medium-sized companies for expansion, including both external sources like commercial bank loans, equity finance, and venture funding, as well as internal sources such as owner's capital, sales of fixed assets, and personal savings. The report includes a financial ratio analysis of Panini Ltd., calculating and commenting on key performance indicators such as gross profit margin, operating profit margin, return on capital employed, current ratio, quick ratio, inventory turnover, receivables collection period, and payables payment period. It analyzes changes in these ratios to assess the company's financial health and identify potential causes for these changes, providing insights for strategic decision-making.

FINANCIAL DECISION
MAKING

TABLE OF CONTENT
INTRODUCTION...........................................................................................................................4
MAIN BODY...................................................................................................................................4
Evaluating importance of accounting and finance functions.......................................................4
Discussing various sources of finance available to small and medium company for expansion 6
TASK 2............................................................................................................................................7
a. Calculating the ratios of Panini Ltd. .......................................................................................7
b. Commenting on performance and causes for changes in financial ratios................................8
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Accounting and Finance helps the any company to maintain the right record of profits of
losses within the firm. Also, present report will evaluate importance of accounting functions,
duties and roles within a business organization. Furthermore, financial ratios will also be
calculated to determine company performance. Lastly, various sources of finance will also be
covered under this report.
MAIN BODY
Evaluating the importance of Accounting and Finance functions
Accounting department plays very important role in tracking the expenditures and incomes
along with providing organization financial information so that effective business decision might
be taken in the future. Furthermore, there are various sub parts in this departments that are been
described briefly as follows:
 Accounting and financial function is crucial in identifying the true position of company
and allows the company to create the right budget for the future. Also, it helps in keeping
record of daily transactions through bookkeeping, so that certain changes if required by
the management might be made on time (Chahadah, Refae and Qasim, 2018).
 Moreover, management accounting is another one that allows management to do proper
planning and plans various budget so that all employees are able to move in right
direction and also maximum revenues are generated in the end. Also, management
accounting helps in analysing, interpreting and communicating information to manager
 Further, the importance of the tax accounting is such that it helps in the setting the short
and long term objectives of the firm through advising about business transactions and
reports same to various stakeholders. Thus, it helps to minimize the overall risk that
might occur due to the unforeseen events.
 Moreover, auditing functions helps in assessing the quality of internal controls through
providing the records to the firms so that they are able to operate efficiently and
effectively (Liu and et.al., 2022.). Also, auditing functions monitors compliance with
certain guidelines and rules that are established by the Exchange Commission and other
regularities thus helps identifying changes that are happening both internally and
externally, within and outside the business.

However, major demerits of the accounting in any business are that it counts only those
information’s that are in terms of money. Also, there are higher chances that accounting
information might be biased by any one of the member who record and collect the accounting
information Also, accounting helps in maximizing the value of organization in the target market
by increasing profit of the organization in well-defined manner. Thus, all these efforts the
accounting will assure the firm that safe investment opportunities are created along with proper
return on investment so that best capital structure might be formulated in the future operation of
the business and employees are able to remain satisfied with right distribution of profits over the
years
Furthermore, the major significance of finance functions is that it helps in ensuring that
all financial records are accurate and up to the mark. Although, if the managers do not use the
information that is (accurate) than it might only lead to poor decisions. Also, the sub parts in this
department are been discussed as follows:
 Also, Investment finance function ensures that organization has enough funds for the
continuous operations and all the financial investments done by the company are done
wisely through holding and managing securities.
 Furthermore, the major finance functions is related with providing funds needed by
the firm by keeping in mind the objectives and other factors such as cash flow, break-
even point, costs, profit and loss and much more. Thus, finance functions is related with
procurement of long and short term funds on the basis of which organization are able to
carry out the daily routine work and plan better strategies for the future operations of the
business. Hence, through finance functions the financial stability of the firm is assured
and cost of operations is minimized to large extent.
 Also, dividend function within this includes distribution to profits to various eligible
shareholders on the basis of profits earned by the company over the period of time. Also,
it is responsibility of top management where various duties and roles are been assigned
to group of team within the organization on the basis of certain talents and to distribute
certain profits ration in most effective manner through presenting various reports
 Furthermore, working capital function enables the company to maintain the cash flow
to meet certain expenses and to carry out various activities in most efficient manner.
Also, employees in various organizations are held accountable for several tasks in the

workplace and thus it is responsibility of each manager of various departments to keep
the systematic records of each employee so that corrective measures might be taken and
also various short term obligations are fulfilled in timely manner (Naim, 2022).
Moreover, the top management of any organization is responsible for planning, organizing,
directing, staffing and controlling various activities so that there is no wastage of resources
and also minimum duplication of the activities (Standar and Kozera, 2019). Furthermore,
there are various other sub levels that are classified within the organization such as finance
department, marketing department, human resource department and much more. Thus, all
these have the assigned task that needs to be carried out within the specified time frame
keeping in mind overall organizational objectives. However, the major problem for any of
the firm is that if the top management does have the strong groups of employees that are
highly specialized in carrying out various task than there are higher chances that productivity
levels is poor and also chances of errors are much higher.
Also, the accounting manager of Panini Ltd need to assure that all the accounting
information is duly submitted so that management is able to the take right decision and also
suggestions for the improvement also need to be provided through closely identifying the
total fixed and variable cost in the business. Also, through the finance department is
responsible for making sure that business is able to manage the inflow and the outflow of
money in the best possible manner and also able to manage the multiple levels of the
management. Further, apart from the monetary measure it is also interested in the fulfilling
the tax compliances of the company along with identifying sources of the fund-raising
through closely analysing all the financial records during the end of any financial years
(Gallardo, 2020). Also, through such reports Panini Ltd top management would be able to
assist the managers in making certain key strategic decisions across each level so that
company continuous growth and success might be assured.
Discussing various sources of finance available to small and medium company for expansion
There are various sources of finance that might be opted by small organizations so that
more funds would allow the firm to carry out certain task within the business in the best possible
manner. Some sources of external sources of finance available are described as follows:
External sources

These are the finances that are taken to fulfil long term needs of the company so that
resources are brought up easily and the gaols are met timely manner. Moreover, such type of
finances provides benefit to the company in due course of time.
Commercial bank loans : Banks are also considered as part of external sources of
finance. Moreover, there are various banks that are ready to provide short term finances to small
firms so that there is better development of the country in the future. Also, loans have the fixed
maturity date with certain amount of interest rate that had to be paid at the time of the repayment
(Ardila, Zurriah and Suryani, 2019.)..
Equity finance: This is the external source of finance where the capital within the
business is raised through selling shares to number of investors (Sources of Finance, 2022).
Also, the value of their shares is totally dependent upon the business performance and investors
have the opportunity to earn interest out of number of the shares brought and depending upon the
growth and profitability of the business. Further, investors are likely to develop interest in all the
activities that are undertaken within the business to ensure certain goals are achieved in the best
possible manner that would allow them to earn more profits.
Venture funding: This is external sources of financing and is defined as type of
companies that helps the start-up companies in providing the funds if they find that company
goals are strategic and high scope of the covering the large market and maximum revenues in the
future.
Internal sources of finances
These are the finances that are taken by the company to fulfil certain short term needs
during the expansion so that smooth process might be ensured for the business. Some of them
are:
Owners capital: It is type of internal source of finance that is taken by the company from
the owner itself with full promise that it would be paid back later in the future with some amount
of profits. Although, such types of capital are provided by owner of company only when small or
medium organizations have the strong personal financial records so that there is guarantee of no
losses in the future
Sales of fixed asset: These are the type of internal short term revenues where the
company sells some of its fixed assets to avail the required loan amount. Also, the fixed assets

are sometimes kept on lease so that the chances of repayment are assured and also assets might
be recovered later in the future.
Personal savings: These are internal source of finance where the company own personal
savings are been kept aside that might be utilized for the future expansion purpose. Also, such
type of savings is beneficial as the company does not need to pay interest amount unlike other
sources of finance.
TASK 2
a. Calculating the ratios of Panini Ltd.
Ratios Formulas of ratios 2018 2019
Gross profit margin Gross net income /
Revenue from sales *
100
3500 / 10000 * 100
= 35%
3265 / 11500 * 100
= 31.5%
Operating profit
margin
Operating net income
/ Revenue from sales
* 100
2765 / 10000 * 100
= 276.5%
2305 / 11500 * 100
= 20.04 %
Return on Capital
employed
Operating net income
/ Capital employed *
100
2765 / 8755 * 100
= 31.58%
2305 / 10211 * 100
= 22.57%
Current ratio Current Assets /
Current Liabilities
1175 / 970 = 1.21
times
2110 / 512 = 4.12
times
Quick ratio Quick Assets /
Current Liabilities
825 / 970 = 0.85 times 1436 / 512 = 2.8 times
Inventory Turnover Inventory / Cost of 350 / 6500 * 365 674 / 8235 * 365

days Goods sold * number
of days in year
= 19.65 / 20 days
= 29.87 / 30 days
Receivables
Collection Period
Accounts Receivables
/ Net Sales revenue *
number of days in
year
760 / 10000 * 365
= 28 days
1340 / 11500 * 365
= 42.53 /43 days
Payables Payment
Period
Accounts Payables /
Cost of Sales *
number of days in
year
920 / 6500 * 365
= 51.66 / 52 days
495 / 8235 * 365
= 21.94 / 22 days
b. Commenting on performance and causes for changes in financial ratios
i. Gross profit margin is the analysis of the company's financial health that is
calculated by the amount remaining in product sales by subtracting COGS
(Nariswari and Nugraha, 2020). The gross profit of the company in year 2018
was 3500 and the revenue from sales was 10000. This shows that the company is
having 35% of GP margin and in year it reduces to 31.5%. By this it can be
interpreted that there is reduction in the percentage of GP margin which has
affected the profitability of the firm. This can be due to the improper sale by not
fixing the profit margin in order to sell the products. The cited organization must
focus on their sales which helps them to have increase in GP margin.
ii. The operating profit margin of the company helps the company to know about the
profit that they have make after paying the variable cost that is used in production.
The operating profit of the company in the year 2018 was 2765 which shows that
it has 267.5 % of operating profit margin. This used to reduced to 20.04% in the
year 2019 that interprets that the company is having less operating margin which
may affect the profits. This reduction is caused due to improper or decrease in
sales of the company or by increase in the other expenses (Nirmanggi and Muslih,

2020). In order to improve the value in future the company must focus on the
better production and sales method.
iii. Return on capital employed is the financial ratio of the company that helps the
firm to know about is profitability and capital efficiency (Murtala and et.al.,
2018). From the above calculation of the return on capital employed it can be
interpreted that the company is having 31.58% of ROCE in year 2018. As it is
greater than the minimum ROCE that is 15% in the year. The return on capital
employed is better as in next year it is also more than 15% in 2019. This shows
that the company is having and generating the good return.
iv. The current ratio of the company helps them to know about the liquidity of the
company in order to pay short term obligations that are due. From the above
calculation of the current ratio it can be interpreted that there is increase in the
current assets of the company that shows that the company is able in order to cope
up with the liabilities. The current ratio in 2028 was 1,21 times which was
increased to 4 time in 2019. The company is ideal current ratio is 2:1 which helps
the company to pay the obligation if occurs or which are due. In order to improve
the company must have their investment else which helps them to increase the
profit.
v. The quick ratio is also known as the acid test ratio which helps the company to
pay of their liabilities. As in 2018 the company is having less quick ratio that
implies that the company's inventory cannot be liquidated faster. But in year
2019 the quick ratio of the company increases that was 2.8 times so this helps the
company to liquidate its inventory faster. The company must have the ideal quick
ratio that helps them to meet up with the liabilities and debt if it may occur
(Tumanggor, 2020). The company must operate in the same way related to this
ratio which helps them to have improvement in the liquidation of things.
vi. Inventory turnover days are calculated in order to determine that how many that it
will take to sell the products that are stored in inventory. This is determined by the
company by dividing the days with the goods to be sold in the given period. The
above ratio analysis shows that the in year 2018 the inventory turnover day was of
20 days which increases to 30 days in year 2019. This shows that it took more

time to sell the products which used to affect the profitability of the firm. As there
is increase in the inventory so the company must focus on its sales to have more
production. As the days are increased the company must focus on the economic
order quantity method that helps to know about the quantity to be stored in
inventory.
vii. Receivables collection period helps the company to measure the days in order to
collect the accounts receivable that is basically based on the balance in the
account receivable. This makes the company to know its performance by
measuring the cash flow statements. It the company is having positive cash flow
statement that shows that they are having good receivable collection period. As
there is increase in number of days of receivable collection period which causes
effect the performance of the company. This is because of selling more product on
the credit to the marketers. In order to improve this, the company must do changes
in their collection of funds from the debtors which make them to receive the funds
faster.
viii. Payable Payment period used to measure the number of days that the company
use to take in order to pay its accounts payable. This used to show the liquidity of
the company that the company is able to pay the amount that they have taken by
outsiders (Purnomo, 2018). The payment period of the company is reduced that
shows that the company is not purchasing the product on the credit. This will help
the company to have more retained earning by not paying interest on the credit
purchase. This can be improved by having the less sales on the credit which
increases the profitability.
CONCLUSION
From the above report it can be concluded that accounting play crucial role in
determining the company strengths and weakness and also allow taking certain corrective
measures on time. Also, the report had identified the roles and duties of the finance department
in the Panini Ltd along with various short and long term sources of finance that might be used for
the expansion purpose. Lastly, the study had commented on company performance through
calculating various types of ratios such as quick ratio, current ratio, receivable collection period

and much more and had provided possible causes for the changes in the financial ratio over the
years.

REFERENCES
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Online
Sources of Finance. 2022. [Online]. Available
through:<https://efinancemanagement.com/sources-of-finance>.