Financial Management Report: Persimmon PLC Case Study Analysis

This report provides a detailed analysis of financial management principles, focusing on decision-making processes, stakeholder management, and fraud detection techniques within the context of Persimmon PLC. The report explores various approaches and techniques for effective decision-making, including formal and informal methods, brainstorming, and cost-benefit analysis. It examines the importance of stakeholder management, addressing conflicting objectives and the value of management accounting techniques, such as financial statement analysis and budgetary control, for cost control and maximizing shareholder value. The report also delves into techniques for fraud detection and prevention, including auditing, technology utilization, and gap analysis. Furthermore, it analyzes the use of financial data in operational and strategic business decision-making, comparing investment appraisal techniques, and discussing financial decision-making for supporting long-term sustainability. The report concludes with a reflection on the key concepts and their practical implications for financial management in a business enterprise.

FINANCIAL
MANAGEMENT

Table of Contents
Table of Contents.............................................................................................................................2
INTRODUTION..............................................................................................................................3
SCENARIO A..................................................................................................................................3
1. Range of approaches, techniques and factor contributing to effective decision making........3
2. Stakeholder management and conflicting objective of different stakeholder.........................4
3. Value of management accounting techniques.........................................................................5
4. Techniques of fraud detection and prevention........................................................................6
5. Reflection................................................................................................................................6
SCENARIO B..................................................................................................................................7
1. Financial data in making operational and strategic business decision making.......................7
2.Comparing and contrasting investments appraisal techniques and its effectiveness in
maximising return on investments............................................................................................10
3. Value of techniques used for financial decision making......................................................12
4. Financial decision making for supporting long term sustainability of the enterprise...........13
5. Management accounting techniques in improving the financial sustainability of the
enterprise...................................................................................................................................13
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUTION
Financial management refers to the process of planning, organising, directing and
controlling the financial activities such as the procurement as well as utilisation of financial
funds of the company. It involves application of the management principles over financial
resources of company. Financial management ensures that the resources of the company are
being utilised in the best possible manner. It makes efficient allocation of the resources among
different activities of the enterprise. Present report is based over Persimmon Plc.
The study will provide about the approaches and techniques used for decision making,
management of stakeholders and their interests. It will also provide about management
accounting techniques for costs control. report will reveal the techniques used for fraud detection
and prevention in an enterprise. Research will also provide about the operational and strategic
decisions made by company using financial statements and how financial decision making helps
in long term sustainability of the company. There are various techniques used by companies for
effective financial decision making.
SCENARIO A
1. Range of approaches, techniques and factor contributing to effective decision making
Approaches of decision making- there are many several different types of approaches
which the company can use at time of taking the decision. Without effective decision the
business cannot run in smooth and effective manner (Alam, 2018). Thus, it is essential for
company to follow different approaches of decision making. The major approaches are as
follows-
Formal decision making- this is the most important decision making approaches which is
being followed by the company in taking decisions. Under this approach the decision will be
taken with help of formal chain in which the responsibilities are allotted to the employees.
Informal decision making- this is an approach under which the decision are taken in the
informal manner that is there is no chain of command and the decision are taken in the
participatory manner wherein all the employees are involved in the decision making process.
Techniques of decision making- in addition to the approaches there are also some
techniques which can be used in decision making-

Brainstorming- this is a technique in through which the decision is taken with help of
technique of brainstorming the management team can take the decision. The brainstorming is a
technique in which all the employees within the company sits together and then discuss about the
decision and then finalise the decision.
Cost benefit analysis- this is also a technique under which the company uses the cost and
benefit of a decision to finalise the decision. Under this method the cost of implementing the
decision and the resulting benefit of the decision are compared and if the benefit is more than the
cost then the decision is finalised.
Factors contributing the decision making- along with the approaches and techniques there
are also many different factors which affect the decision making process to a great extent
(Candee and et.al., 2018). The major factors which are affecting the decision making process by
the management team of the company are as follows-
Perception issue- this is most important factor which can affect the process of decision
making. This is majorly because of the reason that the perception and the thinking power and
ability of the people are different from one another and this will make sure that fr finalising the
decision there are different options for the company (Kireeva, 2016).
Policies and procedures- this also has a huge impact over the decision taking by the
company because if the policies and practices are rigid and hard then the company will not be
able to take tough decision. Hence, the policies and procedures of the company affects the
working and decision making ability of the company to a great extent.
2. Stakeholder management and conflicting objective of different stakeholder
Stakeholder management is a process through which company is able to manage,
organize, monitor and try to improve the relation with the stakeholders. This involves the
systematic review of the need and requirement of the stakeholder so that their need can be
satisfied by the company. The stakeholder is the people who work for the company in order to
improve the performance and profitability of the business. This is majorly done because of the
fact that when the company grows then the needs and requirement of the stakeholders are
automatically fulfilled. Hence, a good stakeholder management process states that the company
is able to assess the requirement of the stakeholder of the company and try to make them happy
and satisfied. There are many different types of stakeholders within the company and these may
be both internal and external. These are like consumers, employees, suppliers, government,

competitors and all the other people who are interested within the profits and development of the
company.
The objectives of the all the stakeholders are different and this is assessed by placing the
need of the stakeholder on the stakeholder management plan. Under this the power and interest
of each of the stakeholder is defined and then they are given priority that whose interest will be
satisfied first. The objective of the entire stakeholder is conflicting and this makes it difficult for
the company in making the stakeholder satisfied. For instance, the shareholder objective is to
focus mainly on cost effective product and not to focus much on quality but the consumer lay
more emphasize over the quality of the goods and service (Olafsson and Pagel, 2018).
3. Value of management accounting techniques
The management accounting is the branch of accounting which helps the company in
taking the decision for the benefit of company by keeping the financial information as a base.
There are many different management accounting techniques which help the company in cost
control and to maximise the shareholder. The major management accounting technique is the
analysis of the financial statements as this will assist the company in managing and taking the
decision for the treatment and development of the company (Usenko and et.al., 2018). This also
helps the company in taking the decision for the growth and expansion of the business for better
opportunities. This includes the analysis of the statements such as profit and loss, balance sheet,
cash flow statements and many others. These are of value to the maximisation of stakeholder
value. This is so because of the fact that this helps the stakeholder in assessing the fact that how
much profit the company has earned and what are the future trends of the company in order to
increase the profits.
Another major management technique in the cost control and maximisation of the
stakeholder value is the budgetary control. This is majorly because of the fact that the budgetary
control is the technique which assists the company in making estimation for the company
relating to the future profit and expenses. This will make sure that the company will know that
how much profit or the income can be earned in the future and what areas will include the
expenses. Also, the stakeholder will know in advance that if the entire requirement or the
assumption of the budget will be followed in the intended manner then the minimum of the
estimated profit will be earned by the company.

Hence, all these techniques will maximise the value of the shareholder as this will assist
them in planning the fact that how much the company will earn and what will be the benefits
being enjoyed by the stakeholder if all the estimation will be followed in the same manner.
4. Techniques of fraud detection and prevention
The fraud is an unlawful activity which can hamper the growth and development of the
business and which can also be illegal within the business. There are many different techniques
with which the fraud van be detected within the business and these are as follows-
Auditing- this is the most common and simple method of detecting fraud within the
business. This is because of the fact that under audit an expert from outside the business is hired.
Then this person study all the financial information and then checks that whether all the accounts
and information are correct or not (Wood, 2016).
Another major technique of detecting the fraud is the use of technology in recording of
the data. This is a good method of detecting the fraud because when the company uses the
technology then automatically id the same data is recorded then the company can detect it easily.
Also, this use of technology help the company in preventing any type of fraud as when the
company will try to record the data and if already same data is recorded then the other data will
not be entered within the system automatically.
Another tool of analysing the fraud is the gap analysis as under this technique first some
standards are set and then the work is done. In addition to this if the work is not done as per the
standard then the gap is identified and then corrective actions are taken.
5. Reflection
The above four topics have helped me in getting understanding about the different
approaches that are used in the decision making process. In decision making different approaches
are used such as functional approaches, formal and informal approaches. These approaches are
used by the organisation as per the need and situation of the business. Techniques used in
decision making enable the management in making effective choices from the several options
available. I have learned that decision making is very important process of the organisation that
leads the organisation towards success or failure. Every decision is taken by the management
after analysing all the related factors that could affect the effectiveness of decisions.
For an enterprise stakeholder management is an essential task which is required to be
achieved by management. Stakeholders are the parties interested in the success or failure of

business. i have understand that the company is required to manage its operations where the
interests of stakeholders are not affected. Cost accounting tools enable the company to control
the cost of manufacturing products. Company by analysing the operations take effective
strategies that enable the company to control its cost and achieve the maximum benefits with the
available resources. Maximising the shareholder wealth is the objective of management and
different strategic and operational decisions are taken for increasing the value of shareholder.
Wealth of the shareholder is increased by increasing the value of market cap increasing the share
prices. This is achieved by achieving the adequate profit levels and achieving constant growth in
the business. These topics have enhanced my understanding about the importance of financial
management for the business enterprise. Company is required to effectively manage the financial
operations for achieving growth and sustainability.
SCENARIO B
1. Financial data in making operational and strategic business decision making.
Persimmon plc
2019 2018 Change
Liquidity ratio
Current assets 5150 2232
Current liability 3773 1676
Inventory 1101 671
Quick Assets 4049 1561 61%
Current ratio
Current assets /
current liabilities 1.36 1.33 2%
Quick Ratio
(Current Assets -
Inventory) /
Current Liabilities 1.07 0.93 13%

Profitability ratio
Employed Capital 24309 22474
Net operating profit 4544 1188
Return on capital
employed
Net operating
profit/Employed
Capital 18.69% 5.29% 72%
Net Income 4544 1188
Shareholder's Equity 15098 13150
Return on Equity
Net Income /
Shareholder's
Equity 30.10% 9.03% 70%
Cost of Sales 5605 4959
Sales 14206 9167
Gross Margin
Total Sales –
COGS/Total Sales 60.54% 45.90% 24%
Net profit 4544 1188
Sales 14206 9167
Net profit ratio
Operating Income/
Net Sales 31.99% 12.96% 59%
Efficiency Ratios
Inventory 1101 671
Trade Receivables 1258 120
Net Assets 15098 13150
Cost of Sales 5605 4959

Sales 14206 9167
Asset turnover ratio Sales / Net assets 0.94 0.70 26%
Inventory turnover ratio Sales / Inventory 5.09 7.39 -45%
Account receivable
turnover ratio
Sales / Accounts
Receivable 11.29 76.39 -576%
Debt
Debt 9211 9324
Equity 15098 13150
Debt equity ratio Debt/ Equity 61.01% 70.90% -16%
Financial position and performance of the company is analysed using the ration analysis.
It helps the business in making operational and strategic decisions for the business. Ratio
analysis is the tool used by experts for assessing the function of the company. financial position
of the Persimmon plc is assessed using ratio analysis.
Profitability of the company could be assessed using the ratios such as ROCE, ROE,
gross profit margin and net profit margin
Return on capital employed of the company is 18.69% which was 5.29% last year there
has been an upward movement of 72% in the return. This reflects that company is earning
adequate rate of return over the employed capital it is efficiently utilising the resources of
company.
Return on equity reflects the return generated by company over its equity investments. It
is currently earning 30% return with rise of 70% from last year (Chandra, 2017). There has been
significant rise in the return. It could be assessed the strategies of the company has brought
positive results for the enterprise.
Gross profit and net profit margin of the company reflects the rate of return generated
from carrying the business during the year. Gross margin of company is 60% that reflects
company is efficiently managing its cost of sales.

Net profit margin of company is 31% with increase of 60%. It is significant rise that will
help the company achieving its desired goals and objectives successfully. Adequate profit levels
are essential for the growth and success of organisation.
Current ratio of the company provides for the liquidity position of company. current
ration of company is 1.36 which was 1.33 last year. Company is not having strong liquidity
position but is able to meet the short term obligations from the available current assets
Quick ratio measures liquidity excluding inventory in current assets of the business.
Quick ratio of company is 1.07. Company is required to take effective steps for making the
liquidity position of the company strong.
Asset turnover reflects the efficiency of company in effectively using the assets for
generating the sales from the assets. Asset turnover of company is 0.94 that is required to be
increased using effective strategies.
Inventory turnovers shows the frequency of inventor movement, higher the turnover
more efficient the company in managing its inventory (Yermack, 2017). Inventory turnover of
company is 5.09 that have decreased from 7.39. Management is required to increase the
efficiency for achieving required inventory turnover.
Debt equity ratio is used to analyse the capital structure and financial risks of the
business. Company is having debt equity ratio of 61%. It reflects that the company is having
60% debt against equity. This reflects that company uses appropriate mix of debt and equity for
raising the capital funds.
2.Comparing and contrasting investments appraisal techniques and its effectiveness in
maximising return on investments.
Investment appraisal techniques are used by the experts and analysts for checking the
feasibility of major capital expenditures or projects. These expenditures require employment of
big funds that makes it essential for the enterprise to identify the best available option with
minimum cost and maximum benefits. Investment appraisal techniques are NPV, IRR, payback
period and ARR.
Net Present value
Net present value is a investment appraisal techniques used by teh organisation for
checking the profitability of the proposed investment. The technique involves identifying the

profitability of investment by measuring the present value of future cash flows generated from
the project. If the NPV of the project is positive after deducting the initial cost of investment
project is considered to be viable (Martin, 2016). It shows that company will be able to recover
the cost of project and earn profits. Higher the NPV more profitable is the project.
The method involves using discounting factor under time value of money concept that is
not used by other techniques such as ARR and payback period. NPV is the technique used for
making comparison between the two options. However in this technique identifying the
discounting factor is difficult related to the project.
Internal Rate of Return
It is the metric used under the capital budgeting technique for estimating the profitability
of proposed investment. Internal rate of return is the discounting rate which makes present value
of the cash flows to be generated from the project equals to zero. This is the discounting rate
calculated for identifying the feasibility of investments. Projects with higher return have higher
return and project with lower return have lower risks. The technique calculates the discounting
rate for the project. Generally project with IRR of 12% - 15% are considered in the decision
making.
This technique is easy and simple as compared with other techniques of investment
appraisal. The technique also considers time value of money in identifying the feasibility of
investment. Projects could be compared with the IRR and one with higher IRR is chosen by the
company.
Payback period
It is also an investment appraisal techniques used by experts for identifying the viability
of investments. It identifies the time taken by the proposed project for recovering cost of
investments. In simple words it is the time length in which the investment reaches the breakeven
point (Zietlow And et.al., 2018). The project with shorter payback period is profitable and those
with larger payback period are not chosen. It is essential to identify the break even project as
company will start earning profit after reaching this point.
The method like other techniques does not consider time value of money concept in
measuring the payback period. It is a simple and easy method used for identifying feasibility of
investment. Project with higher payback period are not profitable for the company.

3. Value of techniques used for financial decision making
Financial decisions are taken by the management for making the company adaptable to
the changing environment. Decisions are taken after analysing all the factors associated with the
business and the operations. management uses balance sheet income statement, break even
analysis and many other for financial decision making.
Income Statement
Income statement is one of the three financial statement used by the organisation for
decision making. Income statement contains the details regarding income and expenditures of
company. it provide the users to analyse the efficiency in managing the operations to generate
adequate returns. it reflects the performance of the company during given period of time and
provides about the profitability of company in carrying out the business. the statement is very
useful for decision making by the management (Barr and McClellan, 2018). Strategies for
increasing the returns and efficiency are framed analysing the financial performance in income
statement. Management has the objective of earning maximum returns and increasing the wealth
of the shareholders.
Cash Flow Statement
Cash flow statement contains all the details of cash inflow and outflow from business.
Management analyses the cash inflows and outflows in investing, financing and operating
activities. It helps the management to analyse the flow of funds in productive and unproductive
areas. The liquidity of the company is analysed from its cash flows. Decisions by the company
are taken by after analysing the availability of funds and the ability of company in meeting the
cost requirements. It is an effective tool used by management in making financial decisions for
the growth and success of the organisation.
Break Even Analysis
Breakeven point refers to the point at which the cost and revenues are equal. In simple
words it is the point at which company has no profit no loss. It is essential for the business to
identify the breakeven point of production. It helps the business to identify the required sales
level to be achieved by company for reaching the breakeven point. The profits are achieved after
covering the cost of product. It is also used by management for analysing the required sales level
to achieve the appropriate profit margins. The financial business decisions are taken analysing
the breakeven point of company.

4. Financial decision making for supporting long term sustainability of the enterprise.
A company for financial decision making uses different techniques. Management uses
financial statements for decision making and planning strategies. Effective corporate strategies
are framed analysing the financial performance and position of the company over the year. The
strategies help the company to achieve the growth and success in the business. Operational and
strategic decisions made by the management after carrying out different techniques for
identifying the areas of improvement and variances (Madura, 2020). Effective steps are taken by
the management for increasing the efficiency and productivity of the enterprise and reducing the
flaws of the business process. It helps the management in achieving long term sustainability of
the business.
Financial decision making plays a critical role in the success of the organisation in
achieving sustainability. All the processes and operations of the business are conducted on the
basis of decisions taken by management.
5. Management accounting techniques in improving the financial sustainability of the enterprise.
Management accounting refers to the process of analysing the business cost and operations
for preparing the internal financial reports, records and accounts for helping the managers in
decision making. There are different management accounting techniques that are used by the
organisation for achieving success and growth.
Inventory management
Inventory management is one of the most important techniques of the business that is
used for managing the operations. Inventory management technique helps the business ion
keeping track and control over all the inventory movements in the organisation. The modern
inventory management system keeps complete information of all the inventories such as capital
assets, raw materials, work in progress and finished goods. It enables the company in identifying
the frequency of movements between the inventories. This makes the organisation to place
timely order without affecting the production process.
Cost accounting
It is another management accounting technique used by the entities for calculating the
cost of manufacturing the products or services. Cost accounting records all the details about the
cost that is incurred for producing the products or services. Costs are recorded separately as
variable and fixed costs. It helps the company to take effective and cost efficient strategies for

the business. Cost accounting helps the management in producing goods at minimum cost and
maximum benefits. Prices of the products are decided after measuring the cost of products that
will help company in achieving the long term sustainability of the business.
Budgeting
Budgeting is one of the most important tool that is used by the management for decision
making. Budgeting involves preparation of budgets for different departments and operations.
budgets are prepared by the company on previous budgets and making required adjustments for
preparing current budgets. Budgeting is an effective planning that is used for making forecasts
about the future income and expenditures (Shapiro and Hanouna, 2019). These forecasts help the
management in making the spending plan for the business. Budgeting enables the company to
make effective allocation of business resources where the maximum benefits could be derived
from the resources using them efficiently. Effective utilisation of resources helps the business to
achieve long term sustainability of business.
CONCLUSION
From the above discussion it is clear that the financial management is very important for
the success of the company. This is majorly due to the fact that financial management is related
with the proper planning, organizing and allocating of the funds in proper and effective manner.
Thus, this helps the company in managing the company and the money being used in the
working of the company. The present report stated about the different approaches and the
techniques which are being used in order to add to the effective decision making like formal and
informal decision making, brainstorming and many others.
Further it highlighted the stakeholder management and conflicting objective of different
stakeholder like, consumer, employees and others. Further the value of management accounting
and the different techniques of detecting and preventing fraud within the business were
highlighted and these were like auditing, gap analysis and many others. Further in the next
scenario the data obtained for calculation and how it helped in taking decision. Also it compared
the three investment appraisal and the value of techniques which helped in informing financial
decision making.

REFERENCES
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