Financial Decision Making: Accounting, Finance & Ratio Analysis Report

This report provides an overview of financial decision-making, emphasizing the importance of accounting and finance functions within a business organization, including their roles and duties. It explores various sources of finance available to small and medium-sized entities for expansion purposes. A ratio analysis is conducted for Panini Ltd for the years 2018 and 2019, evaluating the company's performance based on efficiency, profitability, and solvency ratios. The analysis reveals insights into the company's gross profit margin, operating profit margin, ROCE, current ratio, quick ratio, inventory turnover days, debtor's collection period, and creditor's collection period, highlighting areas of improvement and strengths in the company's financial performance over the two-year period.

FINANCIAL
DECISION MAKING

Contents
INTRODUCTION...........................................................................................................................2
MAIN BODY...................................................................................................................................2
TASK 1............................................................................................................................................2
1.1 Evaluation of Importance of Accounting and Finance Function, duties and roles within the
business organisation:.............................................................................................................2
1.2 Multiple sources of finance available to small and medium entity for the purpose of
expansion:...............................................................................................................................4
TASK 2............................................................................................................................................4
2.1 Calculation of ratios of Panini Ltd:..................................................................................4
2.2 Evaluation of Performance of the Company on the basis of 2 years:..............................4
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
Financial decision making is the process that has been adopted and implemented by various
corporates so as to identify the pros and cons with respect to utilisation of funds. Decision
making have been a significant part of the business as it ensures that funds are being utilised is
most effective and efficient manner. In this report the discussion has been carried out relating to
importance of accounting and finance function for the business organisation and their duties and
roles within the corporation. Further the discussion has been conducted regarding the various
sources of finance that are being available in order to carry out the expansion for small and
medium corporates. At the end of the report ratio analysis has been conducted for the company
called as Panini Ltd for the year ended 31st December 2018 and 2019 respectively so that
performance can be evaluated. Such ratios are being calculated considering efficiency,
profitability, solvency etc. of the corporate.
MAIN BODY
TASK 1
1.1 Evaluation of Importance of Accounting and Finance Function, duties and roles within the
business organisation:
Accounting plays the significant role in carrying out various activities in the business as it
supports the entity in tracking down the expenditure and incomes they are generating throughout
the financial year. Not only this it also ensures compliance relating to significant laws that are
being applicable to the business, it helps in providing the necessary information relating to final
accounts to government, stakeholders, etc. This information could be helpful for them in carrying
out decision making regarding the funds invested by them in the business. The accounting
function generates key financial statements which are being discussed below:
 Income Statement that deals the income that has been generated in an accounting year.
 Balance sheet that shows the position of corporate as on a particular date.
 Cash flow statement which is considered to be the link between profit and loss statement
and balance sheet that reflects the cash generated and spend within the financial year.
The benefits of accounting function, along with duties and roles are being listed below:
 Business performance could be assessed:

With the help of financial records, the output of the company performance could be
judged easily that how their operating results are being reflecting and where the corporate
stands in the market in their industry and segment. It is necessary for the business to keep
update their records and conduct their audit as well on yearly basis. It is essential because
is helpful for them to track their operating expenses, margins they are earning, and the
debt they are carrying in their business. This information is helpful for them to in
preparation of the budget for the upcoming years as well.
 Statutory compliance could be maintained:
It is mandatory for every organisation to carry out compliance with all the laws and
regulations they are governing as the corporate practice. Generally, companies are being
governed with corporation act, taxation laws, labour laws and so on. If the accounting
system of the business is appropriate, then it would help in making the compliance with
the laws and regulations in as systematic way. Proper books keep the liability of the
government regarding value added tax, goods and service tax or income tax up to date
and they are timely submitted as well with the help of challans. Similarly, calculation of
provident funds for the employees will be calculated easily if books of accounts are clear
and updated.
 Budgets and future projected reports could be prepared:
The financial statements of the organisation play the vital role in preparation of budgets
and projected financial statements. The budgets are being preparation on the basis of
historical data and therefore the authenticity of the historical data plays vital role in
preparation of projections and their accuracy.
 Submission of the financial statements:
It is mandatory for all the companies to submit their annual accounts to registrar of the
company and this will be possible only with the help of accounting function as it helps in
preparation of the financial statement.
Financing Function:
Financing function: The financing function, also referred to as financial management, is
responsible for acquiring and deploying resources to ensure the smooth operation of business
operations. It also aids in the management and planning of financial resources. Here are some
examples of finance functions.

 Planning your finances: Investment planning is an important part of the financing
function. Before investing money in such businesses, it is critical for a company to first
review the company's portfolio and who has a profitable portfolio and provides long-term
Before investing money in such businesses, it is critical for a company to first review the
company's portfolio and who has a profitable portfolio and provides long-term.
 The finance function is responsible for recording loans and advances: When a company
lends money to someone, it is required to keep accurate records. As a result, recovering
the loan amount for the firm's debtors should be straightforward.
Dividend Function: Dividends' fundamental duty is to disperse business profits to shareholders
as dividends. The purpose of earning corporate profit for its shareholders is simply when a
company makes a surplus profit in a year and decides to share the gains among the firm's
shareholders at the annual general meeting (Kaviani, 2019).
 It distributes the following dividends to its equity and preferred shareholders: It is critical
in this dividend function to distribute dividends to the firm's shareholders. When a
business makes a profit in a given year. It first pays dividends to the company's preferred
shareholders, then distributes the remaining profit to the firm's equity shareholders.
 It should be funded exclusively by corporation profits: It is critical that dividends are paid
out of profits only (Sabourin, 2021). If a company produces a profit in a particular year, it
is simply required to pay a dividend on that profit.
Working capital function: This function is primarily in charge of collecting all of a company's
short-term expenses that are due within a year. It also shows the difference between current
assets and liabilities. It can, however, be used to buy merchandise, pay off short-term
obligations, and cover all of a company's day-to-day running expenses.
 Strengthen and diversify the investment portfolio: The company is currently financing its
rapid expansion with low-cost capital.
 High profitability: Increasing corporate profitability is one of the biggest priorities of any
organisation. Only if the company saves money and manages its short-term assets and
liabilities will it be possible.

1.2 Multiple sources of finance available to small and medium entity for the purpose of
expansion:
Public Deposits: The deposits which are arise by the business firms directly from the population
are known as public deposits. The interest rate offered from public deposits are generally higher
than other bank deposits. This source of finance considers any person after filling a specific
form. The firm gives the receipt deposit receipt in return as acknowledgement of debt. It is
helpful for business in medium and short term financial requirement both. This practice of
sources of finance are beneficial for both the investor as well as the company.
Issue of shares: The capital acquired by issue of shares is termed as share capital. These capital
are generally separated into little parts called shares and each and every shares have its own
nominal value. The keeper or holder of shares are known as the business shareholder. The
company generally issued two types of shares that are equity shares and preference shares
whereas, equity shareholders are helps the company in raising long term capital and preference
share useful in term of taking the fixed amount of dividend and taking its capital after the
company claims to creditors have been accomplished.
TASK 2
2.1 Calculation of ratios of Panini Ltd:
(i) Gross profit margin:
Gross profit margin = Gross Profit / Net sales * 100
Year 2018,
= 3500 / 10000 *100
= 35%
Year 2019,
= 3265 / 11500 *100
= 28.39%
(ii) Operating profit margin:
Operating profit margin: operating profit / Net sales *100
Year 2018,
= 2765 / 10000 *100
= 27.65 %
Year 2019,
= 2305 / 11500 *100
= 20.04
(iii) ROCE:
ROCE = Earnings before interest and tax / capital employed
Capital employed = Fixed assets + working capital
Year 2018,

= 2765 / 8755
= 31.58 %
Year 2019,
=2305 / 10211
= 22.57 %
(iv) Current ratio:
Current ratio = Current assets / Current liabilities
Year 2018,
= 1175 / 970
= 1.21:1
Year 2019,
= 2110 / 512
= 4.12:1
(v)Quick ratio:
Quick ratio = Current assets – stocks / Current liabilities
Year 2018,
= 1175 – 350 / 970
= 0.85:1
Year 2019,
= 2110 – 674 / 512
= 2.8:1
(vi)Inventory turnover days:
Inventory turnover ratio = Cost of goods sold / average inventory
Year 2018,
= 6500 / 512
= 12.6 times
Year 2019,
= 8235 / 512
= 16.08 times
(vii)Debtor’s collection period
Debtor collection period = 365 * accounts receivable / sales on credit

Year 2018,
= 365 * 760 / 10000
= 27.74 days
Year 2019,
= 365 * 1340 / 11500
= 42.54 days
(viii)Creditor’s collection period
Creditor's collection period = 365 * accounts payable / sales
Year 2018,
= 365 * 920 / 6500
= 51.6 days
Year 2019,
= 365 * 495 / 8235
= 21.94 days
2.2 Evaluation of Performance of the Company on the basis of 2 years:
This report describes about the performance of panini Ltd through the calculations of financial
ratio. After calculating the financial ratio of the company it evaluates that the performance of the
company in 2019 is not much good as compare to the 2018. It shows that gross profit earns by
the company in 2019 is less and high in 2018 that means company is less efficient and not
performing adequately to perform their task that means company more focus in cost of goods
sold as compare to focus more on the sales. On the other hand, the operating profit of the
company panini Ltd is also less in 2019 as compare to the year 2018 because company generate
more profit in 2018 and work very efficiently to achieve their task but in 2019 company not
focusing on their work and less focus to earn more profit in the company it clearly shows that
firm more focus on the expenditures and less concentration on the income. Apart from this it also
evaluates that the current ratio of the company is good in 2019 as compare to the 2018.
organisation is highly efficient to pay its short-term debt obligations in 2019 that means company
less focusing on the current liability and more focus to create the inflow of money through the

current assets of the company. The quick ratio of the company in 2019 is also good as compare
to 2018 and pay its debts obligations is also strong enough and highly efficient to achieve their
objectives. Inventory turnover ratio tell about the company's efficiency to convert its sock into
sales and higher inventory ratio is fruitful for the company. As per above calculation, inventory
turnover ratio of Panini ltd is higher in year 2019 as compared to year 2018. it shows that
company is on the right path to manage their inventories. Debtor collection period refers to time
taken by a firm to recover its amount form the debtors. Higher collection period refers to the risk
company facing about bad debts. Panini ltd not able to collect payments from is debtors on time
and they are suffering from bad debts also. As per above calculation company take longer time
as compare to previous year to take payments form the debtors. Creditor collection period ratio
refers to the time taken by a company to pay off its creditors. According to the above calculation
creditor collection period of Panini ltd is not favourable and it more than the year 2018.
Company taking too much time to make payment to its debtors which will harm the value of the
firm in the eyes of investors or stakeholders. Company's short term solvency position is good but
company is not effect in long term position. Company has to take corrective steps to
improvement its position at the marketplace.

CONCLUSION
The report prepared as under takes in account the working, functioning and running of a business
in competitive environment and in what manner they can help the company to carry out activities
in an efficient and effective way. It would further help in expanding their operational work which
as a result would be useful in generating desired income, profit and outputs. For eliminating
unwanted costs and expenses the organisation is expected to find out ways that would serve and
result to be fruitful as well as beneficial. In the report as above there are many computations
being done which would help in ascertaining whether the business is running in desired manner
or not and is able to generate enough funds helpful for planning new budgets and work related
actions as well. It would also serve to be useful tool for monitoring expenses and improvement in
work related areas.

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