Financial Management Report: Decision Making & Stakeholders

This financial management report delves into the core principles and practices essential for sound financial decision-making within organizations. The report begins with an examination of various approaches, techniques, and critical factors influencing effective decision-making, including knowledge-based, formal, and informal approaches, alongside the significance of risk assessment and performance analysis. It then explores the intricacies of stakeholder management, addressing the complexities of managing conflicting objectives among diverse stakeholder groups. The value of management accounting techniques in cost control and maximizing stakeholder value is thoroughly discussed, including variance analysis, historical costing, and marginal costing. Furthermore, the report covers techniques for fraud detection and prevention, emphasizing the importance of ethical decision-making. The second part of the report focuses on applying these concepts to a case study, analyzing how data informs operational and strategic decisions, comparing investment appraisal techniques, and assessing how financial decision-making supports long-term sustainability, including recommendations for improvement. The report aims to enhance understanding of financial accounting and its importance for a business to improve financial sustainability.

Financial
Management

Table of Contents
Table of Contents.............................................................................................................................2
INTRODUCTION...........................................................................................................................1
SCENARIO 1..................................................................................................................................1
1. Evaluation of range of approaches, techniques and factors which contribute to effective
decision making in an organisation.............................................................................................1
2. Stakeholder management and the management of conflicting objectives of different
stakeholder groups.......................................................................................................................3
3. The value of management accounting techniques in cost control and maximising
stakeholders value........................................................................................................................3
4. Techniques for fraud detection and prevention and the approach to ethical decision making4
5. Reflection about the learnings of above topics........................................................................5
SCENARIO 2..................................................................................................................................5
1. Identification of the way in which data obtained might help to inform operational and
strategic decisions for the company.............................................................................................5
2. Comparison and contrasting of three investment appraisal techniques and evaluation of their
effectiveness in helping to maximise return on investment.........................................................8
3. Demonstration of the value of techniques in helping to inform financial decision making....9
4. Analysis of the way in which financial decision making supports long-term sustainability...9
5. Recommendation for the way in which management accountant helps to improve financial
sustainability..............................................................................................................................10
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Financial management is a process which is followed by companies when they are
willing to analyse the performance of company. While using it different types of final accounts
are formulated. These are profit and loss account, balance sheet and cash flow statement. For all
the accountants it is very important to make sure that the information which is used by them to
generate the financial statement is accurate. Apar from this they are also responsible to make sue
that are following all the essential principles and rules to generate accounts. It can help to retain
the investors and establish a good market image (Ashmarina, Zotova and Smolina, 2016). Main
aim of this report is to enhance understanding of financial accounting and its importance for a
business to improve financial sustainability. This assignment is segregated in two parts first one
is based upon analysis of key elements of financial accounting. Second part is based upon John
Lewis Partnership Plc which is one of the largest retailers of United Kingdom. It was founded in
year 1929 by John Spedan Lewis. The report covers various topics such as range of approaches,
techniques and factors that contribute in effective decision making, stakeholders management,
value of management accounting techniques, techniques for fraud detection and reflection upon
learning of them. Additionally, use of data to inform operational and strategic decision,
discussion of investment appraisal techniques, value of techniques helping to inform financial
decision making and they way in which it supports long-term sustainability etc. are also
discussed in this project.
SCENARIO 1
1. Evaluation of range of approaches, techniques and factors which contribute to effective
decision making in an organisation
Effective decision making is very important for all the companies as it helps to analyse
the ways in which all the predetermined goals of an organisation could be met. There are various
types of approaches, techniques and factors are used to support the decision making. All of them
are as follows:
Knowledge based approach: This approach is highly focused with quantitative
objective and factual information so that effective decisions could be formulated. In order to
make sure that highly efficient strategies are formed to improve the performance of business this
approach is used (Barr and McClellan, 2018). It is a form of system which is highly focused with
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the capturing of human intelligence so that decisions for future betterment of organisations could
be made. Main purpose of it is to analyse the actual position of business and then find effective
ways to deal with all the adverse impacts of operations which may take place in future.
Formal approach: It is the specific approach or technique which is used in effective
decision making so that performance of business could be improved. When it is applied by the
managers then they pay attention towards proper structure, processes and systems so that they
can assure that decisions taken by them are resulting positively for business. It helps in effective
decision making because with the help of it, the management can make sure that they have
formed specific strategies by keeping structure, processes and systems in mind. The types of
formal approaches which could be used by companies to form decisions are formal meetings,
video conferencing etc.
Informal approach: This approach is based upon relationships, personal networks and
unwritten rules. When it is used in companies then the decisions are formulated by taking help
with the individuals with whom the managers are having good relations. They guide them to
make highly effective and efficient decisions so that they can improve the performance of
business (Brusca, Gómez‐villegas and Montesinos, 2016). Some of the informal approaches to
make decisions are informal group discussion, asking staff to suggest their views for the
strategies etc.
Some of the key factors which are focused to formulate effective decisions for business
are as follows:
Risk for business: It is one of the key factors which are focused by managers while
planning to make effective decisions. With the help of it, such strategies could be formulated that
may result in enhancement of performance of business. It contributes in the effective decision
making because with the help of it, management will form such judgements which can help to
deal with all the risks which may take place in future.
Actual performance: It is also a factor which help to formulate effective decisions for
business. With the help of it, the managers determine the actual situation and position of business
so that effective strategies for dealing with all the negative aspects could be formed (Chandra,
2017).
The above factors facilitate the effective decision making which help to improve
performance of organisation and meet the desired aim.
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2. Stakeholder management and the management of conflicting objectives of different
stakeholder groups
Stakeholders management can be defined as the process which is followed by business
entities for the purpose of monitoring, organising and improving the relationship with the
stakeholders. Main purpose of it is to identify needs of all the stakeholders whether they are
internal or external. Internal stakeholders such as employees, manager etc. contribute in the
decision making as they are having detailed information about the perspective of customers and
their needs. The external stakeholders such as suppliers, investors etc. are having need of getting
higher returns and recovering the credit on time. They also contribute in decision making as their
perspectives are used by decisions makers to formulate policies for business.
All the internal as well as external stakeholders are having different objectives. It is very
important for the companies to manage the conflicting objectives of different stakeholder groups.
The internal group of stakeholders is interest in the good performance and attainment of business
objectives but the external group is highly focused with acquiring higher returns on their
investment or recovering credit on time (Ferguson and Morton-Huddleston, 2016). In order to
manage their conflicting objectives, it is very important for the entities to make sure that
organisational goals are formulated by keeping their objectives in mind. With the help of it,
objectives of all the groups of stakeholders could be met.
3. The value of management accounting techniques in cost control and maximising stakeholders
value
Management accounting can be defined as the process of controlling, managing and
monitoring performance of business so that strategic decisions for future could be formed. While
planning to meet the long-term business goals it is very important for all the companies to
conduct managing accounting on yearly basis. It helps managers to form strategies to reach the
predetermined goals and enhance the market image. There are various types of management
accounting techniques which are used by companies to control cost and enhance the shareholder
value. Discussion of all of them is as follows:
Variance analysis: This technique of management accounting is used to analyse the
variation between the actual and standard cost so that it could be analysed that the company is
able to meet the budget or not. While planning to control the cost it could be used by
organisations. It can help to analyse the difference between the planned and actual number so
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that the managers can formulate strategies to control the cost which is not required. It is mainly
used to analyse cost and revenues for future so that effective decisions to improve business of the
enterprise could be formed.
Historical costing: This management accounting technique states that for all the business
entities it is very important to make sure that they are reflecting the assets and liabilities at the
actual cost rather than the market price. In order to enhance the value for shareholders it is used
by the companies. It will help to record all the elements of balance sheet on their actual cost so
that shareholders can determine actual position of business and can get good returns in the form
of dividend on their funds which are provided by them to the enterprise to carry out operations. It
will be beneficial to increase the value of shareholders so that their interest in business could be
retained for long run in future (Finkler, Smith and Calabrese, 2018).
Marginal costing: This technique is also known as variable costing because only
variable costs are charged to cost units under this approach of management accounting. Main
purpose of it is to determine the additional cost of the increased units which are produced by the
company so that possibility of facing losses could be reduced. With the help of it, objectives such
as cost controlling, increasing shareholder’s value could be achieved. It can guide the managers
to analyse the actual costs of each units so that they could be written off and controlled for
future. On the other hand, when all the costs will be written off properly then it will help the
shareholders to analyse that company is performing well and it will increase tehri value.
4. Techniques for fraud detection and prevention and the approach to ethical decision making
Fraud detection and prevention is very important for all the business entities as it helps to
reduce the errors in the reports. There are various types of techniques which could be used for
the purpose of identification and prevention of frauds. All of them are as follows:
Multiple reporting mechanism: It is one of the main approaches which is used for the
purpose of identification as well as prevention of frauds. According to this technique for all the
companies it is very important to use multiple reports to record the transactions so that when
there is a threat of fraud it could be identified and possibility of it could be prevented.
Proper training to employees: It is another technique which is used for fraud
prevention. When all the staff members will be trained properly then the possibility of frauds will
be very low as they will try to record accurate information in the books.
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Ethical decision making: It can be defined as the process of formulating highly ethical
decisions for carrying out operations. It is focused by all the organisations as it can help to
establish a positive market image. While formulating decisions the managers are required to be
aware of all the actions which are taken by them They are required to analyse that whether they
are ethical or unethical (Karadag, 2017).
5. Reflection about the learnings of above topics
From the above discussion various elements are being learned. From the above four
questions it has been analysed that for all the companies it is very important to use effective
approaches for decision making. All the business entities are required to make sure that
objectives of all the stakeholder groups are met as it can help to meet business goals.
Management accounting plays a vital role in cost controlling and enhancement in stakeholder’s
values as it techniques are highly focused with it. Apart from this, the above discussion helped to
enhance knowledge about techniques which could eb used for fraud detection and prevention
purpose.
SCENARIO 2
1. Identification of the way in which data obtained might help to inform operational and strategic
decisions for the company
John Lewis Partnership Plc is one of the biggest retail firms of UK which is operating
business all around the world. In order to analyse the performance of company different ratios
are calculated which are as follows:
Return on equity ratio: It is used by companies to analyse the rate of return which is
provided by them to the shareholders for the shares which are owned by them within the
organisation. When it will be increased as compare to the previous year then it shows that the
entity is providing more value to the shareholders. If it will be decreased then the value of
shareholders will be decreased. While analysing performance of John Lewis Partnership it is also
used (Madura, 2020).
Gross profit margin ratio: It is one of the main profitability ratios which are analysed
by investors so that they can determine that the enterprise will be able to provide them higher
returns on the money which will be invested by them. With the help of it, it could be determined
that the company is able to generate appropriate profits to fulfil requirements of all the
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stakeholders. In order to analyse actual performance of John Lewis Partnership Plc it is used to
assess the profitability.
Operating profit ratio: This ratio is used to identify the percentage of operating profit
which is generated against sales. It is one of the main ratios which are used to analyse
operational performance of the company. To assess that John Lewis Partnership is performing
well or not it is also used.
Current ratio: In order to analyse the liquid strength of a company current ratio is
calculated it guides the managers to make sure that they are having sufficient funds to pay short
term liabilities. If it is very low then it shows that the business is not able to generate funding to
meet future obligations. To analyse the liquidity of John Lewis this ratio is also calculated
(Martin, 2016).
Debt equity ratio: It is also known as gearing ratio which helps the accountants to
analyse that business is using sufficient amount of internal as well as external funds to carry out
operations. It is very beneficial to make future decisions as it helps to formulate effective
strategies that may result in enhanced performance of business.
Particulars 2018 2019
Return on equity Profit after tax / equity *100
Profit after tax 77 77.3
Equity 2301 2620
Result 3.35 2.95
Gross profit margin Gross profit / sales revenues * 100
Gross profit 3368.1 3385.7
Sales revenues 10215.8 10316.7
Result 32.97 32.82
Operating profit
margin
Operating profit / sales revenues
*100
Operating profit 253.1 229.1
Sales revenues 10215.8 10316.7
Result 2.48 2.22
Current ratio Current assets / current liabilities
Current assets 1690.6 1929
Current liabilities 1945.1 2055.9
result 0.87 0.94
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Debt to equity ratio Debts / equities
Debts 3952 3692.1
Equity 2301 2620
Result 1.72 1.41
The following chart shows differences between the performance of the company for 2018
and 2019:
From the above calculations and chart, it has been analysed that all the ratios of John
Lewis Partnership Plc are decreased in 2019 except current ratio. It reflects that the performance
of the company is not very good as its position in the market is decreased because of decrement
in the financial ratios. Return on equity. Debt to equity, gross and operating profit margin ratios
were high in previous year and in 2019 these are decreased which has left unfavourable impact
upon the performance of company (Mitchell and Calabrese, 2019).
The above information which is obtained from the annual report of John Lewis
Partnership can help to inform operational and strategic decisions for the company (Annual
report of John Lewis Partnership Plc, 2019). With the help of all the ratios the management will
be able to analyse actual position of business and they can form effective and appropriate
decisions so that the performance could be improved. The obtained data will also help the
managers to find best ways to carry out operations so that they can meet long term business goals
such as higher profits, good market image etc.
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2. Comparison and contrasting of three investment appraisal techniques and evaluation of their
effectiveness in helping to maximise return on investment
Investment appraisal techniques are used in capital budgeting so that the management can
take right decision for business. It is very important for all the business entities to make sure that
they are using right approaches to formulate the decision of making investment in a business
project. There are various types of investment appraisal techniques differences among three of
them is as follows:
Basis Payback period Net present value Accounting rate of
return
Definition It is the time period which
will be required by an
investment project to
repay the value of initial
investment.
It can be defined as the
difference between initial
investment and the
discounted cash inflow of
the company.
It is a technique which is
used to analyse the return
or profits which could be
expected by the company
from the investment.
Results Its results are generated in
terms of time period.
The results which are
provided by it show the
currency or monetary
value.
The results of ARR show
the rate of return which
could be acquired by the
enterprise.
Time
value of
money
Pay back period does not
take time value of money
in to consideration so the
results could be
inaccurate.
Time value of money is
taken in to consideration
which calculating NPV so
that accurate results could
be generated.
In ARR time value of
money is not taken in to
consideration.
Contrasting: There are various types of investment appraisal techniques which are used
by companies to evaluate all the proposed projects that are selected to invest monetary resources.
Some of them are payback period, net present value and accounting rate of return. All of them
have various differences which could be analysed with the help of above table. On the other
hand, all of them have some similarities (Penner, 2016). One of them is facilitating the managers
in decision making. These techniques facilitate the managers to make decision regarding the
investment. Another similarity between them is evaluation of the feasibility of the proposed
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projects. All these approaches that are used in capital budgeting help to evaluate all the
investment options so that best one from them could be selected.
3. Demonstration of the value of techniques in helping to inform financial decision making
Financial decision making can be defined as the process of formulating decisions which
can help to attain benefits in future. While making strategies for betterment of business managers
analyse actual performance and then try to formulate effective and efficient decisions for
improvement in the position of business (Yuniningsih, Pertiwi and Purwanto, 2019). In all the
companies such as John Lewis Partnership Plc different types of techniques are used to inform
financial decision making. Some of them are cash flow statement, break even analysis etc.
Description of both of them along with their value in FDM is as follows:
Cash flow statement: It can be defined as a financial statement which is mainly
formulated to record all the cash related transactions that are made by an organisation during the
accounting period. With the help of it, the managers can determine that the company is
generating sufficient amount of cash or not from different types of activities. These are
operating, investing and financing (Renz, 2016). It is very valuable for financial decision making
because it can help to analyse the cash position of enterprise and determine that company is
having inflow or outflow of funds. By analysing all these facts for the entity, the managers will
be able to formulate effective financial decisions which may result positively for the business.
Break even analysis: It is a technique which is used by the organisations to determine
the break even point where cost and revenues are equal to each other. At this point the company
is in the position of no profit and no loss. In financial decision making it plays a vital role
because it guides the accounting professionals to formulate effective strategies so that the
possibility of loss could be ignored and the break-even point could be met.
4. Analysis of the way in which financial decision making supports long-term sustainability
Financial decision making is very important for all the business entities as it helps to find
ways to ignore the possibility of losses. If an entity such as John Lewis Partnership is able to
formulate effective and efficient decisions related to finance then it can help the company to
sustain in the market for long run (Shapiro and Hanouna, 2019). FDM supports the long-term
sustainability because it helps the external as well as internal parties to analyse that the business
is performing well or not. It helps to enhance the market image so that an entity can sustain in the
market successfully.
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5. Recommendation for the way in which management accountant helps to improve financial
sustainability
There are various types of recommendations which can help the management accountant to
improve financial sustainability. All of them are as follows:
 The management accountant can improve the financial sustainability by guiding the
accounting professionals to analyse actual position of business (Spearman, 2019).
 Management accountants can help to improve the financial sustainability by formulating
appropriate internal reports so that the accountants can use them to formulate future
decisions.
CONCLUSION
From the above project report, it has been concluded that financial management is a
technique which is required to be focused by all the organisations to make sure that the generate
final accounts in systematic manner. While planning to improve performance of business it is
very important for all the companies to make sure that they are focusing upon financial
performance. There are various types of approaches which are used to formulate effective
decisions. Apart from this, stakeholder management is also focused by companies so that all the
long-term business goals could be met. In order to analyse the performance different ratios such
as operating and gross profit margin, return on equity etc. are used. Different investment
appraisal techniques are also used by organisations to select best investment option and attain
sustainability for business.
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REFERENCES
Books and Journals:
Ashmarina, S., Zotova, A. and Smolina, E., 2016. Implementation of financial sustainability in
organizations through valuation of financial leverage effect in Russian practice of
financial management. International Journal of Environmental & Science Education.
11(10). pp.3775-3782.
Barr, M. J. and McClellan, G. S., 2018. Budgets and financial management in higher education.
John Wiley & Sons.
Brusca, I., Gómez‐villegas, M. and Montesinos, V., 2016. Public financial management reforms:
The role of IPSAS in Latin‐America. Public Administration and Development. 36(1).
pp.51-64.
Chandra, P., 2017. Investment analysis and portfolio management. McGraw-hill education.
Ferguson, A. and Morton-Huddleston, W., 2016. Recruiting and retaining the next generation of
financial management professionals. The Journal of Government Financial
Management. 65(2). p.46.
Finkler, S. A., Smith, D. L. and Calabrese, T. D., 2018. Financial management for public,
health, and not-for-profit organizations. CQ Press.
Karadag, H., 2017. The impact of industry, firm age and education level on financial
management performance in small and medium-sized enterprises (SMEs). Journal of
Entrepreneurship in emerging economies.
Madura, J., 2020. International financial management. Cengage Learning.
Martin, L. L., 2016. Financial management for human service administrators. Waveland Press.
Mitchell, G. E. and Calabrese, T. D., 2019. Proverbs of nonprofit financial management. The
American Review of Public Administration. 49(6). pp.649-661.
Penner, S. J., 2016. Economics and financial management for nurses and nurse leaders. Springer
Publishing Company.
Renz, D. O., 2016. The Jossey-Bass handbook of nonprofit leadership and management. John
Wiley & Sons.
Shapiro, A. C. and Hanouna, P., 2019. Multinational financial management. Wiley.
Spearman, K., 2019. Financial management for local government (Vol. 1). Routledge.
Yuniningsih, Y., Pertiwi, T. and Purwanto, E., 2019. Fundamental factor of financial
management in determining company values. Management Science Letters. 9(2).
pp.205-216.
Online
Annual report of John Lewis Partnership Plc. 2019. [Online]. Available through:
<https://file.globalacademicresearch.com/projectfiles/internal_cust_document/
johnlewispartnershipannualreportandaccounts2019_1585838263.pdf>
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