Financial Management Report: Analysis of Financial Performance

This report delves into the core principles of financial management, examining the application of these principles within a real-world context. It begins by assessing an organization's adherence to legislative requirements, particularly focusing on issues like GST compliance and payroll tax obligations. The report then analyzes income statements and balance sheets, providing insights into financial performance and risk assessment. Key topics covered include financial probity, accounting principles, and relevant legislations such as the PGPA Act and Fair Trading Act. Additionally, the report explores the requirements of GST, company tax, and Pay As You Go. The report concludes with an analysis of financial management practices, including cost management, fund allocation, the use of accounting software, and strategies to mitigate the risk of misappropriation of funds, highlighting the benefits of audit trails and due diligence. The report also includes practical examples, such as the financial analysis of Simon's Bakery and considerations for vehicle purchases, providing a comprehensive overview of financial management strategies.

Manage Finance

Table of Contents
INTRODUCTION...........................................................................................................................1
SECTION A: SKILLS EVIDENCE................................................................................................1
1. Organisation's adherence to legislative requirement...............................................................1
2. Income and expenditures for the year......................................................................................1
3. Preparation of income statement and balance sheet................................................................2
4. Legislative standards and requirements...................................................................................3
5. Organisation's protocol............................................................................................................3
SECTION B: KNOWLEDGE EVIDENCE....................................................................................4
1. Financial Probity and its requirements....................................................................................4
2. Principles of Accounting and Financial Systems.....................................................................4
3. Legislations relevant to Financial Management......................................................................5
4. Requirements of Goods and Service Tax, Company Tax and Pay As You Go.......................6
SECTION C: PERFORMANCE EVIDENCE................................................................................6
1. Financial Management Analysis of Simon's Bakery...............................................................6
2. Costs to be included on purchase of Vehicles.........................................................................7
3. Allocation of Funds..................................................................................................................7
4. Accounting Software...............................................................................................................7
5. Efficient Ways to reduce risk of misappropriation of funds....................................................7
6. Benefits of Audit Trail.............................................................................................................8
7. Due Diligence..........................................................................................................................8
Skills and Performance Evidence................................................................................................8
CONCLUSION................................................................................................................................8
APPENDICES...............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Managing finance is the process of using monetary resources in appropriate manner so
that all the business activities can be performed properly. It helps to execute operations of
organisations in an effective manner (Brealey and et.al., 2012). For the purpose of strengthening
financial position in the market it is vital to manage funds befittingly in order to attain long term
benefits for company. Main aim of this report is to determine importance of financial
management for enterprises.
This assignment covers various topics such as planning for financial management,
establishment of budgets, allocation of funds and implementation of budgeting processes. Apart
from this, reports on finances are also covered under this report.
SECTION A: SKILLS EVIDENCE
1. Organisation's adherence to legislative requirement
Adam's Grocery store is located at Surry Hills, NSW 2010. It is specialise in selling daily
essential perishable products like fruits, vegetables and packaged products. As it is a small
business entity which is use cash as a mode of transaction and hand written receipts for record. It
is charging goods and service tax from clients but not showing it in the records. It also avoids
additional payments such as superannuation and tax to clients and for this purpose cash is offered
to customers. In order to ignore payroll taxes it shows less employees in the records.
By analysing all the above aspects it ash been observed that organisation is not operating
business according to legal implications. As Adam's Grocery store is charging GST from the
customers and not showing it in to records which depicts that it is not operating business
according to law. In Australia basic foods are GST exempted and the enterprise is charging it
from clients which is totally illegal (GST regulations in Australia, 2019).
As in order to ignore superannuation Adam's Grocery store pay wages to employees in
cash which is not legal according to law because Australian government states that all the
employers in the country is liable to contribute 9.5% in superannuation account of employees.
2. Income and expenditures for the year
Particulars 2017 2018 Difference
Budgeted expenditures 600000 600000 Nil
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Actual expenditures 450000 1300000 850000
Difference 150000 -700000 Nil
Budgeted income 900000 950000 50000
Actual income 1100000 700000 -400000
Difference 200000 -250000 Nil
The above table is formulated for the purpose of analysing differences between budgeted
and actual figures. It depicts that in 2018 the budgeted figures are very low as compare to actual
which can affect organisation's efficiency to execute business operations in future. Main purpose
behind the formulation of this table is to determine that managers are able to forecast appropriate
figures for future or not.
3. Preparation of income statement and balance sheet
Income Statement of Surry Hills for the year ended 30 June 2018
Particulars Amount
Sales 40000
Less: Sales Returns 0
Less: COGS 19100
Total Revenue (a) 20900
Repair and Maintenance -1300
Heating -900
General expenses -1200
Insurance -800
Total Expenses (b) -4200
Net income (a-b) 16700
Balance Sheet for Surry Hills as on 30 June, 2018
Particulars Amount
Assets
Cash in hand 1300
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Cash at bank 2200
Trade receivables 4100
Inventory 4500
Fixtures and fittings 10000
Motor vehicle 8000
Premises 30000
Total Assets 60100
Liabilities and capitals
Trade payables 3400
Capital(52000-12000+16700) 56700
Total Equity and Liabilities 60100
Efficiency Ratio = Expenses / Revenue
= 4200/20900 = 0.201 or 20.1%
Risk (Financial Ratio) = Total Liabilities / Total Assets
= Trade Payables / Total Assets
= 3400 / 60100 = 0.057 or 5.7%
Since the risk undertaken by the business is low viz. 5.7% the leverage undertaken by the
business is also small. This reduces the financial risk in the form of fixed interest payments.
4. Legislative standards and requirements
Tom is a supervisor for Adam's grocery store who recognises that organisation is required
to use documentation policy to record and store information. Maintenance staff has identified
that repair around 1000 dollar is required as on 15 April 2019. On 15 February 2019 an amount
of 200 dollar is required to be taken from Sam who is the plumber and repaired water leakage.
This amount was not paid by Sam as he does not have change at that time. In future only 800
Dollars will be paid to Sam for repairs.
5. Organisation's protocol
During a manual handling process, Adam Grocery Store's employee, John Carter gets
injured by slipping on the floor. In order to communicate this information or seek agreement in
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relation to compliance related policies with supervisors and managers, the following protocol
must be followed:
 Immediately report the hazard or accident to the supervisor without fear of retaliation.
 Immediately provide necessary treatment to the John by taking the injured to nearby
healthcare facility as an in-patient (Incident Notification Information Sheet, 2015).
 Supervisors need to notified in regards to a 'information sheet' as a 'notifiable incident'
under the head 'serious injury' in pursuant of prevalent WHS Law guidelines.
 Preserve the incident site until any further direction is provided by the regulating
authority.
SECTION B: KNOWLEDGE EVIDENCE
1. Financial Probity and its requirements
As per the Department of Finance, Probity clause requires execution of commercial
activities in an ethical, fair and honest manner by a public authority or organisation (Easton and
Sommers, 2018). From this one can derive the meaning of financial probity as all those
procedures, processes and systems that are implemented by organisation in order to effect risk
minimization specifically related to monetary transactions such as salary & wages paid to the
staff, procurement activities, contracts and customer related matters.
It is important to maintain financial probity in business as it facilitates the following:
 Transparency: Probity Procedures shall ensure that an organisation maintains
transparency in all its operations by following an ethical code of conduct. These may be
implemented from the decision making authorities to the level where such judgements are
converted into actions. By adhering to Financial Probity, Steven Chang would be able to
reduce risk of fraud and corruption among other malpractices.
 Accountability: The concept of probity is important to be maintained in any organisation
as it helps in acknowledging accountability among all the organisational levels. It helps in
explaining why a particular task was performed, how it was performed and in what
manner the decisions were made in regards to expenditure allocated as well as rationale
behind those strategies. This will help Mr. Chang in tracking the triggering point of issue,
if any arises in the future.
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In order to maintain financial probity in the business, thus, one can say that the
aforementioned requirements are needed to be fulfilled by Mr. Steven Chang in their enterprise.
2. Principles of Accounting and Financial Systems
Principles of Accounting and Financial Systems are uniform all around the world. The
only difference is its applicability based on the type of organisations, industries as well as the
transactions carried out from country to country. The three principles of accounting and financial
systems that are applicable in Australia are enumerated as under:
 Business Entity: This accounting principle recognizes the organisation and its owners as
two different persons. Thus, giving business to earn profits in its own name, sue or be
sued as well as maintain/ recognise assets and liabilities for owners and the company
separately.
 Going Concern: Principle of Going concern assumes that a business entity would remain
operational for a longer period of time than its members. The period of time here is taken
as perpetuity or foreseeable future. This helps the accountants in deferring, as well as
their recognition, of certain revenues and expenditures to a later period in order to enable
a more effective allocation and usage of organisation's assets.
 Revenue Recognition: This principle provides guidelines for its users, mainly in respect
of the conditions under which revenue must be recognized and accounted for. According
to this, a revenue needs to be duly noted in the books of a company when an event of
substantial nature has taken place for a given business entity. The Principle of Revenue
recognition adopted by Australian organisations specifically relates to the Accrual
Concept of Accounting. Accrual Concept states that transactions must be recorded in the
accounting periods when they actually occur or are earned rather than in periods when
there are cash flows related to them are received.
3. Legislations relevant to Financial Management
 Public Governance, Performance and Accountability (PGPA) Act 2013:
The PGPA Act replaced The Financial Management and Accountability (FMA) Act of 1997 as
well as Commonwealth Authorities and Companies (CAC) Act of 1997 on June 30, 2014 (PGPA
Act, 2013). This national legislation aims to establish a coherent system of governance as well as
accountability, emphasizing mainly on planning, performance and reporting activities adopted by
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various organisations. This act provides certain rules and regulations that help its users in
explaining the framework of organisation especially in relation to Budget Estimates, Planning
and Accountability Cycles and Commitment and Expenditure of Resources. These help in proper
forecasting, disclosure of interests, investments as well as formulation and communication of
financial statements in the form of annual reports.
 Fair Trading Act 1987: This act regulates the provisioning, advertising and description
of goods and services as well as instructs upon the disposal of certain assets and
amenities. Its also applicable for corporations coming under the purview of Food
Authority (Fair Trading Act [1987] (NSW), 2019). In the context of given case scenario,
the Singapore-based entrepreneur wants to open a restaurant in Sydney that comes under
the jurisdiction of New South Wales. As per the Food Authority, the Fair Trading Act of
1987 (NSW) shall also be applicable for Mr. Steven Chang.
4. Requirements of Goods and Service Tax, Company Tax and Pay As You Go
 Goods and Service Tax (GST): This tax is applicable on majority of goods and services
including Restaurants. A uniform rate of 10% is applicable under this Tax Legislation. In
the context of given case study, Mr. Chang would be required to register his business
under GST. Once its registered, the restaurant would be required to include this tax in the
price of food products sold by the enterprise to their customers. For registration, Mr.
Steve would be required to have a GST Turnover of $75,000 or more or provide taxi
travel (GST Requirements, 2019). Additionally, all foods and drinks sold by a restaurant
are taxable even if they include GST- free items to the Australian Taxation Office (ATO).
 Company Tax: This taxation is applicable on Australian Residents at a predefined rate.
However, Steve being a non-resident would also be taxed at the same rate like his
resident counterparts on the income derived from restaurant that he plans to open in
Sydney.
 Pay As You Go: PAYG is a type of withholding tax that requires the tax-payer to file
their returns through retention of tax from payments made to employees. Steve needs to
register with Australian Taxation Office (ATO) before retaining any amount of tax from
payments to employees.
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SECTION C: PERFORMANCE EVIDENCE
1. Financial Management Analysis of Simon's Bakery
The total revenue earned by the business was $7,000 whereas the Total Expenses came to
$4,750. Based on this information, the Bakery's Efficiency comes to 67.86% (= $4750/ $7000)
which is quite high. This is indicative of the fact that the organisation has not been operating to
its full potential and may have management issues. Thus, leaving the Net Profit After Tax at
mere $1,575. Hence, in order to improve efficiency of the Bakery, the company must strive to
control its expenses and generate more sales so as to reach a level of efficiency equivalent to
50% which is considered to be optimal. The main factors that affect Profit and Loss and are
beyond anyone's control include taxation, depreciation as well as risk undertaken by a business.
On the other hand, the Balance Sheet has more of assets than liabilities which indicates a
better picture of the Bakery as on the date of closing. It represents that the Bakery is, to a certain
extent, self-reliant. Also, the financial Risk undertaken by the business is 44.87% (= $12,675 /
$28,250) that comes on the lower side of leverage taking capacity. Hence, in order to increase
the productivity the company can harness a certain level of leverage so as to get much more cash
flows and liquidity in the business.
2. Costs to be included on purchase of Vehicles
Simon's Bakery wants to purchase 4 delivery motorcycles in the financial year 2019. For
this purpose, the company must provision for the fees to be paid in the form of Destination
Charge, Setup, Doc and Title Fees as well as Sales Tax. In addition to this, the useful life must
be ascertained so as to ensure whether the depreciation charged on such vehicles is of
appropriate manner or not.
3. Allocation of Funds
The planned budget for next financial year with a budget of $50,000. In accordance with
statutory and organisational requirements that would possibly lead to business development, the
management can buy another oven or other necessary kitchen appliances that can divided the
labour and improve productivity, thus, leading to rise in revenue for thus business.
4. Accounting Software
QuickBooks Online Accounting Software used by the entity for managing its financial
data, it is a useful tool as it would help in reporting which will facilitate assessing of current stat
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of business at any point of time making the work less time-consuming and tedious. However,
limitations on number of users is one of the major drawbacks of this business. However, as an
analyst it is recommended that the company continues to use this software.
5. Efficient Ways to reduce risk of misappropriation of funds
In order to reduce the risk of fraud, Simon's Bakery can update risk assessment
procedures that include regular review of accounts and other relevant system, conduct
background checks, monitor transactions, implement zero-based budgeting and maintain code of
ethics by listing prohibited actions and consequences thereof.
6. Benefits of Audit Trail
Audit Trails facilitate transparency as well as due diligence. Through the maintenance of
chronological record of transactions, Simon's Bakery Management can easily access and check
the events related to a particular query. This is due to the fact that an Audit Trail provides user
accountability, intrusion detection as well as reconstruction of events during an investigation.
7. Due Diligence
The process of due diligence enables incidents to be reported immediately and accurately,
specifically those which are related to non-compliance by undertaking a risk based approach.
Regular monitoring of staff in pursuance of relevant protocols is carried out through spot-
checking the records. Additionally, the budget anomalies are also investigated through
implementation of zero-based budgeting and internal control measures.
Skills and Performance Evidence
The company's financial health is quite optimal looking at the quick and current ratio that
are consistent for previous three years viz. 2018, 2017 and 2016 with a ratio of 2:1 and 1.3:1
respectively. This means that there is enough cash-flows in the business to maintain liquidity,
meet working capital requirements as well as repay short-term obligations. Additionally, wants
to raise its debt by 20% for the year ended 2019 (Gitman, Juchau and Flanagan, 2015). This
means that the leverage ratio for 2019 will be 4.92 which is not much different from the current
year's Debt Equity Ratio. As there is not much deviation in the new leverage undertaken, it is
recommended. The areas of improvement for the company so as to obtain better outcomes in
coming years include undertaking of higher risks in the form of financial leverage so as to
generate higher returns in future.
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CONCLUSION
From the above discussion, it can be concluded that managing finance is an integral part
of every organisation whether large or small. Also, there are legislations related to taxes, budgets
and financial management that are required to be complied with so as to ensure ethical conduct.
Financial Statements and their analysis also helps in ascertaining the financial health as well as
the forecasting of future plans that are important to make strategic decisions.
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APPENDICES
Calculation of Ratios to analyse financial health of the business
Particulars
As of 30th June
2018
As of 30th June
2017 As of 30th June 2016
Liquidity Ratios:
Current Ratio
Current Assets 9600 7200 6050
Current liabilities 3680 2760 2200
Current Ratio 2.61 2.61 2.75
Quick Ratio
Current Assets 9600 7200 6050
Accounts receivable 4800 3600 3000
Quick Assets 4800 3600 3050
Current liabilities 3680 2760 2200
Quick Ratio 1.30 1.30 1.39
Leverage Ratios:
Debt/Equity Ratio
Total Debt 12700 10500 9550
Total Equity 3100 2200 1500
Debt/Equity Ratio 4.10 4.77 6.37
Leverage Ratio for 2019
Total Debt for 2018 12700
Increase in Debt 20.00%
New Debt 15240
Total Equity 3100
Debt/Equity Ratio 4.92
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