Financial Decision-Making Report: Financial Ratio Analysis, 2017-2018

This report provides an in-depth analysis of financial decision-making processes, focusing on the roles of accounting and finance departments within businesses, using Marks and Spencer as a case study. Task 1 defines the functions of accounting and finance, highlighting their importance in financial transparency, management accounting, tax, and auditing. Task 2 involves a financial ratio analysis of Alpha Limited for 2017 and 2018, calculating and interpreting ratios such as Return on Capital Employed (ROCE), Net Profit Margin, Current Ratio, Debtor Collection Period, and Creditor Collection Period. The analysis reveals a decrease in Alpha Limited's ROCE and Net Profit Margin from 2017 to 2018, attributed to increased operating expenses. The report emphasizes the significance of these ratios in evaluating company performance and making informed financial decisions.

FINANCIAL DECISION MAKING

EXECUTIVE SUMMARY
The project sums up the decision-making on the grounds that the financial results are
evaluated appropriately. The report outlines the role of accounting and finance in the
management of specific facets. As well as the second reporting task outlines the estimation of
different forms of factors and the financial status assessment of relevant companies. On this
basis, it can be summed up that in 2018 the efficiency of Alpha limited company is increased
compared to 2017.

Contents
EXECUTIVE SUMMARY.........................................................................................................................2
INTRODUCTION.......................................................................................................................................4
MAIN BODY..............................................................................................................................................4
Task 1......................................................................................................................................................4
TASK 2...................................................................................................................................................8
CONCLUSION.........................................................................................................................................11
REFERENCES..........................................................................................................................................12

INTRODUCTION
The word "financial decision making” can be described as the decision-making process
for all investors, liabilities and other financial operations within a company (Kubilay and
Bayrakdaroglu, 2016). In the end, financial decisions will be made appropriately by businesses
as any misconception will have an effect on growth and profitability. Therefore, corporations
make financial choices on the basis of an accurate review of their financial results. The project
report is divided into two parts; the first one details the function of accounting and finance for
businesses. The second task is to calculate and view Alpha limited company financial details
with various kinds of ratios. In first task for report, a company has been chosen that is Mark and
Spencer. Marks and the Spencer Group plc (commonly referred to as M&S or Marks & Sparks
commonly) is a large UK international chain, with its head office, London, England. M&S was
established in 1884 by Michael Marks and Thomas Spencer in Leeds. M&S has actually 959
shops all over the UK. The firm is registered in the London Stock Exchange and is a part of the
FTSE 250 index, and has been of the FTSE 100 Index since year 2019.
MAIN BODY
Task 1
Define Accounting and Finance Department:
Accounting department- It is a department that files the annual accounts, manages the admin,
billing payments, consumers paying, payroll, expense accounting, financial reports, etc. The
director of accounting is known as the controller.
Finance department-The financial part of a business is managed by this department. Within a
finance department, the planning, organization, auditing, accounting and finance reporting of the
company is usually carried out in the business. The Ministry of Finance also issues the annual
accounts (Lichtenberg, Ficker and Rahman-Filipiak, 2016).
Importance of Accounting and Finance Department:

Accounting and accounting play a significant part in the administration of both
businesses. Managers can control cash flow and thereby direct the organization's operations by
accurately considering business income and expenses into account (Shtudiner, 2018). Both
departments play a key role in enhancing management of businesses In relation to this business,
the function of both departments is stated in the following way:
Role of Accounts Department:
 Financial accounting- Financial accounting is a specialist field of accounting that
analyzes a company's financial statements (Ahmed and Saravanaraj, 2016). The
transactions are recorded under uniform laws such as an income tax, balance sheet or
financial statement, and are published. The accounting department plays a vital function
in increasing the financial transparency, as it documents all financial reports at a specified
period and provides an accounting system. This section assists with enhancing the
financial statements with assistance from the statements team in the field of Mark and
Spencer.
 Management accounting- Managers utilize management accounting report tools that help
them identify challenges in their businesses that support their management and the
implementation of control mechanisms in management reports or management
accounting (Kim, Gutter and Spangler, 2017). In fact, this accounting is beneficial by
internal reporting allowing businesses to take sound management decisions. The
accounting system plays a vital function, for example, to gather financial records and
interpret these records, and generate such internal reports. Their accounting departments,
such as the above business, require them to prepare internal reports which support them
in making better decisions.
 Tax function- Taxes are voluntary taxes paid by a regulatory agency, state, national or
multinational, and applied to the financing of public services. Economically, if it is a
taxing business, for example, or an actual buyer of the company's goods, taxes are
dependent upon the taxpayer. The accounting team of corporations is also largely
responsible for this. This department helps businesses to determine the sum of tax they
ought to pay over their executives. As in the Mark and Spencer Company, this function is
performed in an effective manner by help of accounts department.

 Auditing function- In order to make sure that a corporation is not only genuine in its
financial records, but also that its processes run as planned; the accounting audit serves
the required role (Vanauken, Ascigil and Carraher, 2017). Auditors may either execute an
internal audit or undertake an external audit for a corporation or with another entity. The
audit comprises of the examination or evaluation by a multiple account auditor for the
real product check to insure that both organizations follow a recorded operation plan for
the monitoring function. It is required to test the quality of the financial statements of the
company. The finance team aims to determine the annual records of the firms. It is
because accountants create and post audit reports that are a source for better audits. As in
the Mark and Spencer Company, this function is performed in an effective manner by
help of accounts department.
Role of Finance Department:
 Investment function- The benefit of expenditure in finance is called income. The profit
may be a benefit (or percentage) generated by the selling of a property or an acquisition
or a mixture of capital gain and profits, unrealized capital gains (or depreciation), or
financial profits including dividends, tax, rental income etc. Currency benefits or declines
related to adjustments in exchange rates can often be included in the return. Investor’s
aspirations are typically greater from riskier funding. When investment is made at low
cost, the return is normally small as well (Nofsinger, Patterson and Shank, 2018).
Likewise, moderate risk outcomes are small. An investment is a commodity or item that
is bought to produce profit or value. The expenditure is mainly to buy goods that are not
actually utilized but that will be capital-generated in the future. In investment financing,
an inventory product is an opportunity because the product will produce income for
selling at a better future price. This is important if companies want to take suitable risks
in order to gain greater returns. In this way, the finance department plays a significant
function, as the financial management directs the decision-making process to invest in
every project. They take stronger investment decisions with financial department in the
above Mark and Spencer plc.
 Financing function- Financing can be defined as a way in which funds are distributed,
acquired or expended for company operations (West and Worthington, 2016). Financial
organizations, like banks, are liable for the supply of services to businesses, customers

and investors to support them achieve their targets. The usage of money, which allows
businesses to purchase products out of sight, is essential for increasing economic system.
The financial department helps administrators to allocate funds to multiple services more
effectively. Such as in the above Mark and Spencer plc, they perform their financial
functions in an effective manner by help of finance department.
 Dividend function- A dividend is the payout to a collective of shareholders of a portion of
the company's earnings decided and managed by the committee of the directors (Smith,
Echelbarger, Gelman, and Rick, 2018). A dividend is a small payout for shareholders'
equity in a corporation's securities and usually is paid out of the company's net profits.
However if the majority of profits in the business are owned by the remaining income
representing the capital to be utilized by the company's existing and future activities, the
balance is returned to the shareholders as a refund. Companies are now also allowing
dividends even though they don't raise the money required. They will continue a lengthy
tradition of receiving dividend distributions on a regular basis in the above plc.
 Working capital function- Capital is an operational liquidity measure for a company,
corporation or other agency, including government agencies. Working capital is regarded
as part of working resources along with fixed assets, such as plants and facilities. One
task of the finance department is to insure the business does not lose capital (Grohmann,
2018). This involves calculating the potential working capital of the business (profits,
payroll, and stock), investing cash into short-term interest income items and managing
currency threats. Working capital is responsible for choosing the numerous applications
of money or in constructing programs. Above all, most businesses will have the capital to
spend on their company in anticipation of rising profits or investment. Nevertheless,
funding opportunities usually outweigh the amount accessible, so operating capital
provides business arguments for the best ventures to be chosen so picked. In addition to
estimating the project benefits, the positive function of capital budgeting will also be to
calculate these benefits over time in evaluating if capital usage was as effective as
initially expected. In the above company, they manage their working capital in an
effective manner by help of finance department.
TASK 2
Calculation of the ratios to analyze company performance:

Ratios 2018 2017
ROCE or Return On Capital
Employed :
= (Operating Profit /Capital
Employed) *100
here, Capital Employed = Total
Assets – External liabilities.
= 412 / 2925 * 100
= 14.10%
= 375 / 1912.50 *100
= 19.60%
Net Profit Margin:
= Net Profit / Sale * 100
= 262.50 / 3000 * 100
= 8.75 %
= 300/ 2400 * 100
= 12.5 %
Current Ratio:
= Current Assets / Current
Liability
= 1035 / 1110
= 0.93
= 757.50 / 322.50
= 2.34
Debtor Collection Period:
= Receivable / Sales *365
= 600 / 3000 * 365
= 73 Days
= 450 / 2400 * 365
= 68.43
= 68 Days
Creditor Collection Period:
= Payable / Purchase * 365
= 1050 / 2400 * 365
= 159.68
= 160 Days
= 285 / 1350 * 365
= 77.05
= 77 Days
Interpretation and analysis of financial ratios:
Return on Capital Employed- This method is used for corporations to calculate the return on
the spent money. The ratio is important to calculate the success of firms on exchanges that will
work on specific projects where this method is used to evaluate their projected income (Wald
and Franco, 2017). This therefore helps various classes of external customers when they invest
their money on organizational structures and activities. Here in the following Alpha Limited
Company, the return on capital invested is 19.60 in year 2017. The number has been lowered by
28.16 in 2018 and by became of 14.10%. Consequently, in 2018 the company's income
performance decreased in accordance with 2017. Since these costs amounted to £300 in 2017
and increased to £337.50 in 2018, these are largely attributed to an increase in operational

expenses in 2018. This rise in investment has inevitably impaired the net return in 2018. In the
next years, administrators of Alpha Limited need to concentrate on rising overall running costs.
If they will do so than it will be beneficial for them to generate higher return on capital.
Net profit margin- The relationship of net sales and income explains the relationship of profit
and tax. From such an income, costs for development, funding, etc. are exempt. This ratio is
critical for businesses' projections, such that they forecast net sales at the end of the fiscal year.
This equation measures the percentage of net benefit to net sales*100. According to the example
above, capital investment in business operations benefits a broad variety of external variables
including investors, retailers etc. Even if the turnover of businesses is raised, the projected return
rate would still be high. In Alpha Limited above, the company's net profit number was 12. 05%
in 2017, which decreased from 29.41 in 2018 and became of 8.75%? In contrast with 2017, a
change in the net profit ratio of the business explains a greater loss in 2018. The primary factor
for the disparity between the net sales loss of 2018 and the rise in production expenditures is the
change in fixed and variable capital spending. In this sense, it is critical for an above-mentioned
firm to concentrate on generating higher income from spending capital and holding all costs
below the standard costs.
Current ratio- It is a type of ratio used by businesses for liquidity evaluation. In order to
compute this ratio, there is a formula that is as: current assets/ current liabilities (Cook and
Sadeghein, 2018). Furthermore, it is necessary for organizations to manage this ratio in an
optimum 2:1 way. If the current ratio is sufficient, it will easily cover short-term debt.
Companies are, in effect, focused on reducing current liabilities and growing total assets. The
Alpha limited company currently had 2.34:1 times in 2017, but only 0:93:1 times in 2018. The 2-
year liquidity scenario shows that in 2017 businesses' liquidity conditions are higher than in
2018, because they have plenty of real cash to borrow in short term. Here is the explanation for
this lower current ratio in 2018 which raised the amount of liabilities this year. Throughout the
course of 2017-2018, gross capital assets have dropped dramatically. In this situation the above
organization must focus on achieving the desired ratio requirement by the current assets. The
company's profitability in paying short-term loans may also be improved.
Debtors’ collection period- This can be defined as a type of ratio correlated with measuring the
number of days that businesses are taking to receive a return fund from specific debtors. The

ratios of the debtor are calculated frequently, even though the ratio is smaller. Through the usage
of this method, institutions, the relationship through debtors eligible for recovery will be
established and strengthened. In fact, the method for measuring this percentage is the total
receivables / net sales * 365 days. In the aspect of above company, this can be find out that their
ratio was of 68 days in year 2017 which raised and became of 73 days in year 2018. This
indicates that the organization has declined its right to seek debtors' loans. The corporation can
not foresee, since the estimate is larger, which debtors will in the future be insolvent. This
ensures the Alpha Limited Company will focus on debtors who expand the repayment and not
threaten to provide any potential loans. The organization will also stress that cash shopping is
important to reduce the sum of insolvent debtors. If this ratio is increased by year, the above-
mentioned company will otherwise have a deficit of funds or losses.
Creditor’s payment period- It is expressed in days, as the above ratio. This can be defined as a
sort of ratio where companies decide how long investors are to be paid (Chhapra, Kashif, Rehan
and Bai, 2018). Ultimately, when lending to certain businesses will keep that amount as low as
possible. The investors for corporations remain, but they do not least. This is how the
organization's efficiency for receiving payments is improved because it's higher. In the
dimension of alpha limited company, this ratio was 77 days in year 2017 which increased and
became of 160 days. The difference was of 52% in both of years. Corporations' reputation for
investor recovery can be viewed as a major disadvantage. In this scenario, a transaction above
the item will be rendered in money. Payouts may be collected with less time, with addition to
allowing cash transactions. If this ratio doesn't change otherwise, a business may face problems.
Accordingly, the performance of Alpha Limited’s financial reports is higher in 2017 than in 2018
on the basis of the following analysis from 2017 to 2018. Both demonstrate progress in 2017,
although the performance in 2018 is lower. In turn, the expenses still grow in 2018, which is a
significant reason for poor financial success in 2018. The manager of above company needs to
focus on those aspects which are resulting in lower performance in year 2018. If they will do so
than it will be easier for them to improve overall performance in an effective manner.

CONCLUSION
The preceding project report concludes that financial decision-making is too important
for businesses, considering that it is essential to successful cash management. The project report
concludes different forms of accounting, such as accounting expenses, standard charges, etc. In
addition to the role in accounting and finance, the report also outlines the company's operation.
Indeed, Alpha Limited Partnerships calculate and evaluate financial considerations in order to
make critical financial decisions. The finding of the report is that the efficiency of the
organization is lower in 2018 compared with 2017.

REFERENCES
Books and journal:
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the Lichtenberg Financial Decision Rating Scale (LFDRS). Journal of elder abuse &
neglect, 28(1), pp.14-33.
Kim, J., Gutter, M.S. and Spangler, T., 2017. Review of family financial decision making:
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Nofsinger, J.R., Patterson, F.M. and Shank, C.A., 2018. Decision-making, financial risk
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Biology, 29, pp.1-16.
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earthquake information. In Proceedings of the 16th World Conference on Earthquake
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Chhapra, I.U., Kashif, M., Rehan, R. and Bai, A., 2018. An empirical investigation of investors
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pp.99-109.