Financial Management: Decision Making and Sustainability Report

This report delves into the core principles of financial management, examining the critical role of decision-making in ensuring a business's sustainability. The report begins by evaluating various approaches, techniques, and factors that contribute to effective organizational decision-making, followed by a discussion on stakeholder management and the resolution of conflicting interests. It then explores the application of management accounting techniques for cost control and maximizing shareholder value, along with methods for fraud detection and ethical decision-making. The second part of the report analyzes the data used for operational and strategic decisions, investment appraisal techniques, and their effectiveness in maximizing returns. It further examines the value of financial decision-making techniques and strategies that support long-term financial sustainability, including the role of management accounting in improving financial performance. The report utilizes financial ratios to assess liquidity, efficiency, profitability, and debt management, providing insights into a company's financial health and its ability to meet its short-term and long-term obligations. The analysis includes real-world examples and financial statements to illustrate key concepts and provide practical applications for financial management.

FINANCIAL MANAGEMENT

TABLE OF CONTENTS
TABLE OF CONTENTS................................................................................................................2
INTRODUCTION...........................................................................................................................1
SCENARIO 1..................................................................................................................................1
1. Evaluation of the range of approaches, techniques and factors contributing to effective
decision making in organisation..................................................................................................1
2. Stakeholder management and management of conflicting of the stakeholder groups............3
3. Management accounting techniques in cost control and maximising the shareholder value.. 3
4. Techniques for fraud detection and prevention and approach for ethical decision making....4
SCENARIO 2..................................................................................................................................5
1. Data obtained for making operational and strategic decisions................................................5
2. Investment appraisal techniques and their effectiveness for maximising the returns over
investments..................................................................................................................................6
3. Value of techniques used in financial decision making...........................................................7
4. Financial decision making to support the long term sustainability.........................................7
5. Management accounting for improving the financial sustainability.....................................10
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Financial management refers to managing th financial operation of the business. It is very
important for the business to have a well defined financial structured to be followed by the
organisation. Present report cover the role of business decision making in the financial
management. It will enhance the understanding about the financial management and
effectiveness of decision making for sustainability of business.
SCENARIO 1
1. Evaluation of the range of approaches, techniques and factors contributing to effective
(Covered in PPT)
2. Stakeholder management and management of conflicting of the stakeholder groups.
(Covered in PPT)
3. Management accounting techniques in cost control and maximising the shareholder value.
(Covered in PPT)
4. Techniques for fraud detection and prevention and approach for ethical decision making
(Covered in PPT)
.
SCENARIO 2
1. Data obtained for making operational and strategic decisions.
Data obtained by the company is used for the operational decision making. Analysis
provides about the internal operation of business. They state the financial position in market and
its wealth. The results of the prior decision of the management could be reflected in the financial
statements of the company. Its profitability, liquidity, efficiency and capital structure could be
assessed from the financial statements of company. After analysing the business operation
manages take strategic decisions for improving its performance. Company reframe its strategies
that do not give positive results and also take measures for increasing its operational efficiency.
Comparison of the performance of the business is done with its competitors which provides the
managers about their standing. Managers adopt strategies for increasing their revenues and take
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corrective steps for keeping its costs under control. An appropriate mix of debts and equity
should be there for having minimum cost of capital.
2. Investment appraisal techniques and their effectiveness for maximising the returns over
investments.
Investment appraisal techniques refer to the techniques that help the manager in making
correct and accurate decisions. These investment appraisal techniques help the managers in
identifying the viability or feasibility of proposed investments to be made. It includes various
techniques such as NPV, ARR and payback period.
Net Present Value
Net present value is the investment appraisal techniques used by the experts and analysts
for identifying the viability of the propose investment. It identified whether the present value of
future cash flows generated are sufficient for recovering the cost of its project. Projectg is
considered to be profitable when the NPV is positive. This technique considers time value of
money which is not considered in other technique. However, it is difficult to determine the
discounting factor. After identifying the present values it could take decisions that maximises its
wealth.
Accounting Rate of Return.
Accounting rate is also the financial ratio used in identifying the profitability of
investments it is used for identifying the return from investments in terms of percentage.
Accounting rate of return focuses over the accounting profits of project. Profits are considered in
the cash flows generated by the project (Yermack 2017). If the return rate is not high project is
not accepted by the company and where with adequate returns is accepted. Unlike NPV this
approach do not consider time value of money. This helps in assessing the returns so that steps
and strategies for improving the cash flows could be taken for maximising the returns.
Payback period
It is an investment appraisal technique used by organisations to assess the feasibility of
investments. Payback period is concerned with identifying the time that will be taken by
investments to recover its cost of initial investments. It is the measure of breakeven point where
it will be meeting its costs. Project with shorter payback are considered profitable as after this it
will start to generate profit after recovering its costs. Using this investment techniques
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management of the company aims at reducing the payback period so that profits could be earned
as early as possible.
3. Value of techniques used in financial decision making.
Balance sheet –
It is one of the financial statements that provides information about the financial position
of company. A balances sheet consists of all the details about the assets and liabilities of the
company. It provides about the capital structure of company and financial risks associated with
the business (Martin, 2016). Using the information provided by balance sheet decisions related
the investments could be taken and for improving the financial structures. Important operational
decisions to increase the efficiency and liquidity are taken by the company with appropriated
measures.
Cash flows-
It is a financial statement that represents the inflows and outflows of cash. This is
prepared by the organisation giving information about the liquidity position of company. it could
be identified using these statement where the cash is deployed and the sources from where the
cash is raised. Management take effective strategic decisions for improving the liquidity position
of the company using this statement (BarR and McClellan, 2018). It is s highly used in financial
decision making by the managements as decisions are to be taken analysing the liquidity position
of the company.
Break even analysis –
It is a tool used in decision making by the managers for deciding their production
activities and related financial decisions. It is a metrics used for analysing the point at which the
product will meet its costs (Atmadja and Saputra, 2018). An appropriate sales mix is determined
for determining th level of sales company is required to achieve for achieving the required rate of
returns. It is used by the business management for making decisions related to the strategies to
achieve the goals and objectives of business.
4. Financial decision making to support the long term sustainability.
Persimmon plc
2018 2017
Liquidity ratio
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Current assets 4215.7 4228.8
Current liability 1123.9 1198.6
Current ratio 3.75 3.53
Current assets / current liabilities
Current assets 4215.7 4228.8
Inventory 3059.5 2825.9
Current liability 1123.9 1198.6
Liquid ratio 1.03 1.17
Current assets - (stock + prepaid
expenses)
Activity ratio
Trade Receivables 91.8 86.1
Sales 3737.6 3597.8
Account receivable turnover ratio 2.46% 2.39%
Sales 3737.6 3597.8
Net Assets 3194.5 3201.6
Asset turnover ratio 117.00% 112.38%
Sales / Net assets
Profitability ratio
Employed Capital 3527.8 3558.2
Net operating profit 1090.8 966.1
Return on capital employed 30.92% 27.15%
Net operating profit/Employed Capital
Net Income 1090.8 966.1
Shareholder's Equity 3194.5 3201.6
Return on Equity 39.30% 41.10%
Net Income / Shareholder's Equity
Cost of Sales 2557.7 2526.1
Sales 3737.6 3597.8
Gross Margin 31.57% 29.79%
Total Sales – COGS/Total Sales
Operating profit 1090.8 966.1
Sales 3737.6 3597.8
Operating profit ratio 29.18% 26.85%
Operating Income/ Net Sales
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Debt
Debt 333.3 356.6
Equity 3194.4 3201.6
Debt equity ratio 10.43% 11.14%
Debt/ Equity
Financial information helps in taking decision related to the long term sustainability.
Liquidity position is assessed by current ratio which is 3.75 and this represents strong liquidity
position of company. Quick ratio of the company is 1.03 that is below the standards of 1.5:1.
This shows that excluding the inventory liquidity position of the company is not strong. Every
company si required to strong liquidity position as it reflects the ability of company to meet its
short term obligations. For financial sustainability company is required to take corrective steps
for managing its inventory.
Efficiency of the company is measured using trade receivables ratio that is 2.46% and
asset turnover ratio that is 117%. It represents the ability of company to generate revenues as
against its assets. This reflects the efficient utilisation of the available resources that is essential
for long term sustainability of business (Madura, 2020).
Return on capital employed of company is 30.92% that is increased from last year.
Company is having significant over its capital employed. It could be interpreted that company is
making effective utilisation of the resources. High return brings confidence in the management
and employees of company.
Return over equity represents return earned by company over equity investment in th
company. This should be at least upto the industry average. Return on equity of company is
39.30% that represents that it is giving high returns to its shareholders. wealth of the
shareholders is maximised with the higher return over the equity investments. Investors are
interested in the returns over their investments and therefore the companies focuses over
enhancing their performance with the effective strategies (Shapiro and Hanouna, 2019).
Gross margin ratio of company is 31.57% that is considerably adequate as per the real
estate sector. Gross profit means the profit that is left with company after covering its cost of
sales that is production and other like cost. Net profit margin of the company is 29.18% which
represents the net profit from carrying out the business during the given period. It is essential for
the organisation to have adequate for long term sustainability of the company. High profit
margin represents the efficiency of the management in running the business successfully.
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Debt Equity ratio is 10.43% that against the equity company is having 10 percent of debt.
Capital structure of the company is adequate with proper mix of debt and equity. It shows the
financial risks associated with the business (Atmadja and Saputra, 2018). High financial risks
affect the sustainability of company therefore it should strive for reducing the financial risks.
5. Management accounting for improving the financial sustainability.
Management accounting is quite necessary for the financial sustainability because it
helps a business to take better decision for the company which incorporates with the economic,
environmental and social components. Also, many government and regulatory bodies are also
tightening the relevant rules and regulations in order to become a socially responsible. Also, if
the organization have effective management accounting system then it will definitely assist to
enhance the overall performance of the company and also develop further growth options as well
(Căpușneanu and et.al., 2020). On the other side, globalization and technological development
and rapid population growth are sometimes cause fundamental change in the business world.
Therefore, it is also analyzed that through management accounting tools and techniques,
the company will easily manage the work and improve its financial performance as well. It is so
because it is not easy to perform the work manually and keep in mind all the expenses, that is
why, it is quite necessary to use management accounting and its standard principles that will
assist to raise the brand image of company and improve its financial performance as well (Jones
And et.al., 2018). In addition to this, most of the top leaders and managers also uses the
management accounting in their companies so that they will easily determine the actual
performance of the company and also make decisions accordingly. So, to minimize the issue and
difficulties, it is quite necessary for the company to take decisions accordingly and implement
management accounting tool and techniques as well.
CONCLUSION
From the above report it is concluded that financial management is very essential for
business. Companies for making informed business decisions are required to have knowledge of
the various financial management concepts. Decision making is very important task to be
performed by the management therefore it should be taken after analysing all the facts and
figures.
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REFERENCES
Books and Journals
Căpușneanu, S. and et.al.,2020. Management Accounting in the Digital Economy: Evolution and
Perspectives. In Improving Business Performance Through Innovation in the Digital
Economy (pp. 156-176).IGI Global.
Shapiro, A.C. and Hanouna, P., 2019. Multinational financial management. Wiley.
Madura, J., 2020. International financial management. Cengage Learning.
Jones, C. And et.al., 2018. Financial Management for Nurse Managers and Executives-E-Book.
Elsevier Health Sciences.
Barr, M.J. and McClellan, G.S., 2018. Budgets and financial management in higher education.
John Wiley & Sons.
Martin, L.L., 2016. Financial management for human service administrators. Waveland Press.
Yermack, D., 2017. Donor governance and financial management in prominent US art
museums. Journal of Cultural Economics.41(3). pp.215-235.
Matthew, B.T., 2016. Financial management in the sport industry. Taylor & Francis.
Atmadja, A.T. and Saputra, K.A.K., 2018. Determinant factors influencing the accountability of
village financial management. Academy of Strategic Management Journal.
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