Financial Decision Making Report: Panini Ltd, BM 414 Analysis

This report provides a detailed financial analysis of Panini Ltd, a medium-sized bread-making company, focusing on financial decision-making. It begins with an introduction to financial decision-making and outlines the duties and responsibilities of accounting and finance departments. The report then delves into specific functions within these departments, including financial accounting, management accounting, tax, auditing, investment, financing, dividend, and working capital. Furthermore, the report explores various sources of finance available to Panini Ltd for expansion purposes, distinguishing between long-term and short-term financing options. A significant portion of the report is dedicated to ratio analysis, where eight key financial ratios are calculated for 2018 and 2019, including gross profit margin, operating profit margin, ROCE, current ratio, quick ratio, inventory turnover days, debtor’s collection period, and creditor’s collection period. Each ratio is analyzed individually, comparing the results between the two years and discussing the implications of the changes. The report concludes with recommendations for improving the financial performance of the company based on the ratio analysis and the overall financial data.

BM 414 Financial
Decision Making
Report

Table of Contents
Contents
INTRODUCTION...........................................................................................................................
TASK...............................................................................................................................................
Identify the functions related to finance and accounting departments.............................
PART B...........................................................................................................................................
Calculate the ratios...................................................................................................................
CONCLUSION.............................................................................................................................
REFERENCES............................................................................................................................

Introduction
Financial decision making is a decision made by the Finance Manager in
order to know about the finance matrix of the management. Financial decision
making mainly focuses on borrowing and allocation of funds. Funds can be arranged
by an organisation by two sources namely its own capital and from outside the
organisation (Abu-Rahma and Jaleel, 2019). In the following it explains about the duty
and responsibilities of Panini. Ltd. It also provides various accounting functions
performed and duties of the management. It also helps in determining the objective
and goals of the management. Further various ratios are calculated to know the
performance of Panini Ltd. And also advice on the various methods which helps in
improving the performance of the company.
TASK 1
Part a: Accounting and Finance departments
For each of the below two departments, you need to provide a brief
introduction, before you proceed to the analysis of each function.
The following two departments along with their functions should be covered:
1. Accounting department:
a) Financial accounting function: The element of bookkeeping the
monetary activity. This system helps in dealing with the past records of
the management. It further helps in arranging the past records for the
future plans and goals purpose. It also aids in managing the expenses
and monetary figures. There are few elements of bookkeeping:
It helps in keeping the monetary transactions of the organisation: This method helps
in mainting the association with the accounts and bookkeeping in order to know the
the records of the firm (Dilawar and et.al., 2021).
b) Management accounting function: management helps supervisor to
know the actual association between the management and association.
It helps in breaking, deciding, deciphering the data and convey the
information. Association helps in accomplish the goals of the
management.
c) Tax function: this function helps in knowing the implication and
consequences of the transactions and report those transaction to the
stakeholders which helps helps them to know what is going in the
organization.
d) Auditing function: Audit function is conducted by the auditor of the
company and ensures that all the financial statements are accurate
and truthful.
2. Finance department:

a) Investment function: Investment is related with the purchase of shares
and stocks, dentures, equities and government bond. These
investment only includes financial investment and not the real
investment (Dinçer, Yüksel and Çetiner, 2019).
b) Financing function: This function is related with the management which
helps in providing funds which is needed by the organizations in order
to funds the business activities of the businesses.
c) Dividend function: This function aids in distribution of profits to the
shareholders of the company. The amount of dividend is determined by
the help and under the guidance of board of directors of the
organisation. Dividends are the payments made by the company to its
shareholders for investing in the company.
d) Working capital function: It is the amount of funds needed by the
organisation in order to determine the needs to funds to meet the short
term debt obligation of the firm. If an organisation have enough working
capital then it will be able to pay off its suppliers and employees of the
organisation.
Part b: Sources of finance
Source of finance is used to finance activity for running and managing the business
activities. In the following case, Panini Ltd. Uses various sources of finance which is
available to the organisation to manage the business operations. These source of
finance includes equity, debt, working capital loan, term loan, etc. these funds are
used to finance the business activities and development of the business operational
activities (Fu and Chen, 2021).
It also plays a vital role in the marketing and economic activities of the business.
These activities supports the innovation, quality of owner and financial support.
There are two sources of finance:
Long term finance: long term source of finance is used to finance the business
activities and operations which are related with the long term profitability of the
business. Long term finance are mainly used for the project which the business is
going to undertake in order to upsurge the effectiveness and profitability of the
organization.
Short Term finance are taken to pay off the debt obligations which is considered for
paying the short term debt of the company. It helps in managing positive cash flow in
the management. Short term finance includes working capital loans, trade credit,
working capital loan (Kayanda, Busagala and Tedre, 2019).
TASK 2
Part a: Calculation of the 8 ratios below using the correct formulas
(i) Gross profit margin: Gross profit/ Net sales * 100
2018: 3500/ 10000 * 100 = 35%

2019: 3265/ 11500 * 100 = 28.39%
(ii) Operating profit margin: Operating profit/ Net sales * 100
2018: 2765/ 10000* 100 = 27.65%
2019: 2305/ 11500* 100 = 20.04%
(iii) Return on capital employed (ROCE): Earnings before interest and
tax/ Share equity + Long term liabilities * 100
2018: 2765/ 8755= 31.58%
2019: 2305/ 10211* 100 = 22.57%
(iv) Current ratio: Current assets/ Current liabilities
2018: 1175/ 970 = 1.211: 1
2019: 2110/ 512 = 4.12: 1
(v) Quick ratio: Current assets – Inventory / Current liabilities
2018: 1175 – 350/ 970 = 0.85: 1
2019: 2110 – 675/ 512 = 2.80: 1
(vi) Inventory turnover days: Cost of goods sold / average inventory
2018: 6500 / 350 = 13.57 times
2019: 8235 / 512 = 16.08 times
(vii) Debtor’s collection period: sales on credit / accounts receivable *
365
2018: 10000 / 760 * 365 = 27.74 days
2019: 11500 / 1340 * 365 = 42.54 days
(viii) Creditor’s collection period: cost of sales / trade payable * 365
2018: 6500 / 920 * 365 = 51.6 days
2019: 8235 / 707.5 * 365 = 31.36 days

Part b: Individual analysis of each ratio based on the numerical results from
part a
(i) Gross profit margin
a. Gross profit is calculated by subtracting the cost of goods sold from the
revenue of the organisation.
b. What does the ratio indicate about the company’s performance: This
ratio states the profitability of the organisation after deduction the
expenses incurred by the organisation. This ratio is calculated by
dividing the gross profit by sales to determine the percentage of profits
earned by the organisation.
c. Compare 2018 figures with the 2019 figures calculated above: The
change in profits of the company is because of the decrease in the
gross profits and increase in the sales of the company. Increase in the
sales have reduced the profitability of the business. The profit margin
has reduced because production of extra unit have caused to increase
the cost of the operation of the company (Laletas, 2019).
d. Ways to improve the value of the ratio in the future: The company can
improve the ratio by decreasing their cost of operations taking
corrective measure to reduce the operations which incurs more costs.
Further the organisation can use its existing resources to optimise the
cost of production. These activities of the further needs to monitor for
the proper functioning of the management.
(ii) Operating profit margin
a. Operating profit determine the profit earned by the operating activity of
the management.
b. What does the ratio indicate about the company’s performance: This
ratio indicates the profits earned by the organization from operating
activity of the firm.
c. Reasons for changes in the ratio between 2018 and 2019: operating
profits of the organisation have reduced which have reduce the
profitability of the company.
d. Ways to improve the value of the ratio in the future: The business
needs to work upon its working and managing the cost of production to
increase the operating profit of the business. It helps in proper utilising
the available resources to its best use which makes it cost effective
(Mason, Narcum and Mason, 2020).
(iii) ROCE
a. this ratio helps in calculating the profit earned from the capital
employed in the business. It helps in knowing how much profits are

earned by the management from the amount invested in the activities
of the firm.
b. What does the ratio indicate about the company’s performance: The
ratios has declined because of the use more equity for the purpose of
investment which has caused it to reduced the profitability of the
business.
c. Reasons for changes in the ratio between 2018 and 2019: In the
following step the business earns profit but the amount earned by the
business is lower that he profits earned by the business in 2018. The
concern for the management is that the business needs to increase the
profitability as the amount invested does not provide enough profits for
the organisation.
d. Ways to improve the value of the ratio in the future: It increases the
profits and decreases the expenses incurred by the firm to increase the
profitability of the firm.
(iv) Current ratio
a. This ratio helps in determine the short term paying capacity of the firm,
which helps in knowing how much the organisation is able to pay off its
total current liabilities. This ratio shows the relationship between the
current assets and current liabilities.
b. What does the ratio indicate about the company’s performance: This
ratio measures the short term paying capacity of the business which
helps in de terming the short term paying capacity of the business.
c. Reasons for changes in the ratio between 2018 and 2019: Current ratio
of the organisation has increased because of the increase in the
current assets of the organisation and also the current liability of the
organization have reduced.
d. Ways to improve the value of the ratio in the future: Further it can be
improved by increasing the current assets and decreasing the current
liability of the firm. These activities includes various ratios such as
current ratio and need to signifies the current obligation of the company
(Murshid, 2018).
(v) Quick ratio
a. This ratio helps in determining the liquidity position of the company.
Liquid assets are calculated by subtracting the prepaid expenses and
inventories of the management.
b. What does the ratio indicate about the company’s performance: it helps
in determining the performance by dividing the current assets and
current liabilities of the company.

c. Reasons for changes in the ratio between 2018 and 2019: The reason
behind the change in the quick ratio is decrease in the current liabilities
and increase in the liquid assets of the company.
(vi) Inventory turnover days
a. In this ratio it determine the number of times stock is rotated in a year.
b. What does the ratio indicate about the company’s performance: it helps
in de terming the sales which the organisation will be able to perform in
a specific period of time.
c. Reasons for changes in the ratio between 2018 and 2019: In the
following case the ratio calculated determines the increase in the cost
of goods sold of the business concern.
d. Ways to improve the value of the ratio in the future: The organisation
can choose to reduce the inventory available in the management to
increase the rotation of the inventory (Nguyen and et.al., 2020).
(vii) Debtor’s collection period
a. This ratio determines the time period in which the organisation can
ascertain the amount of collection from its debtors.
b. What does the ratio indicate about the company’s performance:
Increase in the sales of the organsation have csaued increase in the
sales of the business concern.
c. Reasons for changes in the ratio between 2018 and 2019: Account
receivables of the company has increased in the company.
d. Ways to improve the value of the ratio in the future: The ratios have
increased because of the increase in the number of days of the
organisation has increased and the number of days also increased
because of the increase in the sales.
(viii) Creditor’s collection period
a. This ratio determines the number of days taken by the management in
order to pay the amount due to its creditor’s. This also determine s the
number of days it takes to pay off its creditors.
b. What does the ratio indicate about the company’s performance: this
ratio suggests that the time taken to pay off its creditors has reduced
which means that the amount will paid more frequently (Rhodes, 2019).
c. Reasons for changes in the ratio between 2018 and 2019: the ratio has
decreased because of decrease in the trade payables and increase in
the cost of sales of the company.
d. Ways to improve the value of the ratio in the future: This ratio helps in
determining the efficiency of the work performed by the management.
The collection of funds needs to completed in fewer period of time
which increase the amount of funds available (Slaček Brlek, 2018).

Conclusion
From the above report it can be concluded that Panini Ltd. Performance and
various functions which needs to analysed. It also suggests the areas where the
organisation needs to work upon. These functions help in future profitability of the
organisation in the long run. Further various ratios are premeditated to determine the
monetarist situation of the corporation and tries to maintain and enhance the
profitability of the business.

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