Analysis of Financial Decision Making: Accounting and Finance Report

This report focuses on financial decision-making, emphasizing the roles of accounting and finance within an organization, illustrated through a case study of Tesco. It analyzes financial statements, including income statements, cash flow statements, and balance sheets, to assess financial performance. The report delves into the significance of accounting in providing critical information for management decisions, examining key financial ratios such as return on capital employed, net profit margin, current ratio, debtor collection period, and creditor payment period. The analysis of Alpha Limited's performance reveals declining trends in these ratios, suggesting challenges in profitability and liquidity, possibly influenced by economic factors. The conclusion highlights the importance of financial analysis for organizational improvement and profitability.

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Table of Contents
Task 1...............................................................................................................................................2
Accounting and Finance..............................................................................................................2
Task 2...............................................................................................................................................3
Ratios...........................................................................................................................................3
Performance of Alpha limited.....................................................................................................5
Conclusion.......................................................................................................................................5
References........................................................................................................................................6
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Introduction
The entire report focuses on financial decision making. Financial decision making States about
the process through which organisation can make all the decisions related to finance of the
company it also states about the decisions of assets, liabilities and equity of stakeholders (Afzali,
2020). This report also States about role of accounting and Finance in the organisation apart from
this it also states about various ratios suggest profit margin current ratio and return on capital
employed.
Task 1
Accounting and Finance
The role of accounting in finance is very important for every organisation because it
provides valuable information to the management so that the management of the organisation
can track down the income and expenses of different departments. Discuss the role of accounting
and Finance an organisation called Tesco has been taken. This company follows financial
statement such as income statement cash flow and balance sheet so that the management can
know all the information related to expenses and income in detail? The major role which is being
played by the accounting and Finance Department within the organisation is that record all the
data which is related to the finance and accounting of the organisation and assist management to
know what is exactly going on in the business .
Finance and accounting department create proper budget and financial records of the flow of
money throughout the business and also help the management to build proper budget
(Bebbington and et.al 2018). Apart from this it also analyse the overall financial performance
and improve the business of the organisation as well. It helps the organisation to know how
much expenses they have made and how much income they have generated by imposing such
expenses. Every company has a gold to earn profit but it is in the hands of Management how the
Builder road so that organisation can get success.
This goal can only be achieved by the company when they increase the sales and also
provide high quality products to their customer. Customers have various options available easily
switch to other brands and companies it is the responsibility of management that they must form
suitable strategies so that organisation can satisfy the needs of their customer. Along with this
financial accounting department is responsible for developing various business strategy in the
favour of the company as well.
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Task 2
Ratios
Return on capital employed
Particular 2017 2018
Profit 300 262.5
Total Assets 2235 4035
Current liabilities 1162.50 1110
ROCE 27.97% 8.97%
ROCE = Earnings before interest and tax (EBIT)/ Capital Employed
2235-1162.50=2118.5
Return on capital employed is known to be the difference between the total Assets and total
liabilities of the company. It also states that how much return is been generated by the company
by using the capital. This company the return on capital ratio was 27.97% in the year 2017 but it
has decreased in 2018 and gets 8.97%.
Net profit margin ratio
Particular 2017 2018
Profit 300 262.5
Revenue 2400 3000
Margin 12.5 8.75%
As the name suggests it states about profitability of the company by considering total revenue.
Net profit margin also gives information about the cost and expenses of the company apart from
this and also speaks about revenue and surplus of the company (Flayyih, and et.al2019). But this
is also decreasing in the year 2017 net profit margin ratio was 12.5% but in 2018 it remains
8.75%.
Current ratio
Formula = current assets/ current liabilities
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For 2017
757.50/322.50= 2.34
For 2018
1035/1110=0.93
Current ratio popularly known as liquidity ratio, which states about the liquidity of the company
(Narayan, and et.al 2018). Current ratio shows that how company is able to utilise their current
assets so that they can repay to the current liabilities of the company. Is ratio is continuously
decreasing in the year 2017 the pressure was 2.34 % on the other hand 2018 it remains at 0.93 %.
Debtor Collection period
Particular 2017 2018
credit sales 2400 3000
Average net receivables 450 600
Total amount of days in period 365 365
Debtor Collection period 68.44 73
Debtors collection period shows that the average the average time which is been taken by the
clients of the organisation to repay all the credit sales. If the debtor collection period is high in
the company then it shows that their debtors are not paying the amount of sales which puts a
negative impact of the overall profitability of the company. In 2017 the data collection period
was 68.4 % whereas it is increased in 2018 and become 73 days.
Creditor’s payment period
Particular 2017 2018
Payable trades 285 1050
Cost of sales 1950 2625
Total amount of days in period 53.34 146
Creditor’s payment period also describes the time which is taken by the company to pay off their
liabilities and all the obligations. As per the given data it can be stated that in 2017 the credit
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payment period was 53 days but in 2018 it has been increased to 146 days it means company is
running short of fund and therefore it is not able to repay their creditors on time.
Performance of Alpha limited
After analysing all the ratios that can be stated that the performance of Alpha Limited is not up to
the mark and company is not achieving expected profit and goal (Flayyih and et.al 2019). All the
major ratios of the company is continuously decreasing such as return on capital employed which
shows the overall return over the capital that ratio is also decreasing it means company is not
able to generate fund. Along with this current ratio is also decreasing means company is not able
to repay its liabilities. Apart from this creditors payment ratio is increasing order Means
Company is making delay in providing payment to their creditors. The reason behind low
performance of Alpha Limited can be economic downturn and impact of pandemic.
Conclusion
From the above report it has been concluded that this report demonstrated about financial
decision making. It also provides detailed information about the role of accounting and Finance
within the organisation. Report also provide information and calculation of various ratios such as
return on capital employed current ratio debtor collection period and creditors collection periods
and many more so that organisation can improve eyes deferential health and overall profitability
of the organisation.
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References
Books and Journals
Afzali, M., 2020. Essays on the Role of Social Networks and Social Capital in Accounting and
Finance.
Bebbington, J. and Unerman, J., 2018. Achieving the United Nations Sustainable Development
Goals: an enabling role for accounting research. Accounting, Auditing & Accountability
Journal.
Flayyih, H.H., Mohammed, Y.N. and Talab, H.R., 2019. The role of accounting information in
reducing the funding constraints of small and medium enterprises in Iraq. African
Journal of Hospitality, Tourism and Leisure, 8(4), pp.1-10.
Narayan, A. and Stittle, J., 2018. The role of accounting in transforming public tertiary
institutions in New Zealand. Accounting, Auditing & Accountability Journal.
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