Financial Decision Making: Accounting, Finance, Ratios & Expansion

This report examines financial decision-making within a company, focusing on the roles and duties of accounting and finance departments. It analyzes Panini Ltd., a medium-sized bread producer in the UK, and its plans for expansion. The report details the importance of accounting functions such as recording transactions and analyzing performance, as well as the roles in decision-making and tracking income/expenditure. In finance, the report highlights functions like raising funds and financial planning, emphasizing the implementation of decisions and management of the external business environment. It further explores various financing options for company expansion, including retained earnings, equity, and debts. The report includes a calculation and analysis of financial ratios for 2018 and 2019, discussing possible reasons for observed changes in gross profit margin, operating profit margin, return on capital employed, current ratio, quick ratio, inventory turnover days, receivable collection period and payable payment period.

FINANCIAL
DECISION MAKING

CONTENTS
INTRODUCTION...........................................................................................................................3
TASK 1:..........................................................................................................................................3
1.1 EXAMINE THE IMPORTANCE OF ACCOUNTING AND FINANCE RELATED FUNCTIONS, DUTIES AND ROLES WITHIN A
COMPANY...............................................................................................................................................3
1.2. DESCRIBE VARIOUS WAYS WHICH WOULD HELP TO FINANCE COMPANY FOR EXPANSION AND GROWTH PURPOSES....6
TASK 2:..........................................................................................................................................6
A) CALCULATION OF RATIOS IS PRESENTED AS UNDER:........................................................................7
B) EXPLAIN POSSIBLE REASONS FOR OBSERVED CHANGES IN FINANCIAL RATIOS CALCULATED FOR TWO YEARS.................8
CONCLUSION.............................................................................................................................10
REFERENCES..............................................................................................................................12

INTRODUCTION
The report prepared below gives an idea about working of finance and accounting in a
company (Durband and et.al., 2018). It helps to understand what are the important functions,
roles and duties carried out in a organisation. The report thus discusses about Panini ltd company
which is a medium size business organisation and deals in production of bread for super markets
in UK territory. It is planning to expand its operations and work further in the coming years the
reason being it’s at present success rate. It also helps to understand necessity of ratios calculated
as below that provides a better and clearer picture about the firm over years. It also helps to find
various ways to generate funds and use them for growth and expansion in near future.
TASK 1:
1.1 EXAMINE THE IMPORTANCE OF ACCOUNTING AND FINANCE RELATED FUNCTIONS,
DUTIES AND ROLES WITHIN A COMPANY.
Accounting: The term can be explained as collection, sorting, compiling the data at one
place and recording the useful monetary transactions. Preparation of financial statements,
records and reports helps business in providing proper guidance for the management of funds,
scarce resources. It can further be explained as a process which keeps proper books of accounts
and sort useful fund based areas. The main purpose of accounting is to assess performance of
employees as well as company. Therefore, it helps to evaluate position of the business in
economy and cash inflow as well as outflow taking place over a period of time. It serves as a
tool for investors to predict whether it would be fruitful to invest money or not (Wierzbitzki,
Seidens and Rudolf, 2019).
Functions of Accounting: There are many functions which are helpful for Panini ltd. Company.
Some are described below:
1. Record useful transactions: It is important for Panini ltd company to record
transactions which would provide a clear and transparent picture of business working in
economy.

2. Analyse the performances: Accounting helps to conduct a proper analysis of the Panini
ltd. Company that would be beneficial in maintaining long life cycle of business in a
competitive environment.
Role of Accounting: There are many required roles which helps company to carry out
operations efficiently and effectively. Some are listed below:
 Helps in decision making: Accounting helps in better decision making by selecting the
best option among alternatives available with Panini ltd company. It helps to choose the
best option among the ones which are offered to business so as to understand which
would prove to be more profitable over others.
 Keep a track of income and expenditure: Accounting helps Panini ltd company to
track revenue and income generated during the running of business. It also finds out
possible reasons, causes and issues responsible for unwanted costs & expenditures.
Duties of Accounting:
 Predicting risks and Financial Forecasting: There are various duties which must be
performed in a Panini ltd organisation and accounting serves as best method to carry out
such related functions. It helps to assess predicted risk prevailing around the business and
how funds can be generated for further expansion and growth of firm (GROSU, ROBU
and ISTRATE, 2020).
 Monitor budgets: Budgets play a vital and important role in company. Accounting helps
in planning and preparation of budgets. It also helps to implement the best suitable option
for Panini ltd company and monitor it on frequent basis as well.
 Finance: It is a broader concept when compared to accounting which is linked with
activities such as debts, credit, investments, capital markets etc. Finance presents
management of money and funds generated which would be needed in future for carrying
out useful operations for the success and growth of business.
Functions of Finance: Various functions of finance are described below which includes
monetary aspects as well.

 Raise funds: Generation of required funds and revenues is necessary in every company
whether small scale or medium scale. In Panini ltd it can be observed that it is planning
to expand its business and operations thus it would be requiring adequate funds for
planning and implementation of such actions (Nicholls, 2020).
 Financial planning: It can be explained as planning of funds collected. It includes how
Panini ltd company would be investing its funds at right place in right amount which
would help it to produce desired results over years.
Role of Finance: It helps to understand how finance is important in every company some roles
are explained as under:
 Implementation of decisions: It is necessary in every company to implement its
decisions taken at the right time. It thus explains procedure followed in Panini ltd
company for applying decisions to the required areas and monitor them on timely basis.
Decision making is responsible for results observed during the success of a organisation.
 Manage external business environment: Every company is affected by many factors
some are uncontrollable in nature such as external factors which can only be managed
and cannot be controlled. In case of Panini ltd company, it needs to take special care of
such causes which might behave as an obstacle in efficient working of firm.
Duties of Finance: There are duties assigned to every area for betterment of company. Some
duties assigned to finance sector are explained as under:
 Tax planning: Tax and interest affect working and performance of company if not paid
or managed on time. Such factors are important in Panini ltd company as well which
would help investors and managers to understand liquidity and position of business in
environment.
 Provide strategic guidance: Finance is the base for planning strategies, policies and
actions which would help in growth and expansion of business. Panini ltd company also
requires planned strategies for improving its growth stage and expand its operations over
untapped areas.

1.2. DESCRIBE VARIOUS WAYS WHICH WOULD HELP TO FINANCE COMPANY FOR EXPANSION
AND GROWTH PURPOSES.
There are many ways which help companies to generate funds for expansion and growth related
activities (Gaitonde and et.al., 2019). The motive of Panini ltd company is to expand its market
on a larger scale thus it requires ways which would contribute in such operations. Some methods
which serve as a useful tool are listed below:
 Retained earnings: It can be described as earnings which could be used for payments of
dividends to shareholders on a future date. It can further be explained as income which
was saved by the business over a time span. It would help Panini ltd. In providing fuds
for research and development, ensuring stability of organisation in market and improve
the value of stock in environment. It thus indicates amount of equity which is held
collectively by the firm. It would be more helpful the reason bring the company is not
required to hunt for options which would generate revenues and increase any kind of
unwanted expenses in mid of growing stage of business. It is considered as one of the
best method for providing monetary support towards organisation (Al-Sartawi, 2018).
 Equity: It is another method helpful to assess value of company in economy and serve as
a tool for facilitating expansion & growth for the coming years. It is thus useful for
Panini ltd company to use this technique for raising funds without increasing the burden
of liability and loans. Equity allows to generate capital which could be used for
generating further funds and make best possible use of it. There is no burden on
companies which would be if they borrowed funds from market or from banks. It also
helps to increase customer and employee’s engagement in business for long life of firm.
 Debts: Debt is considered as cheaper cost source of funds which helps to earn a higher
return to investors of equity. If the debt which is being selected by Panini ltd company
helps to increase net worth of the business then it can be counted as positive and thus
would help to generate more funds and revenues which can be further invested for
development of firm (Galvão, 2021).
TASK 2:

A) CALCULATION OF RATIOS IS PRESENTED AS UNDER:
(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: Earnings before interest and tax/ Share
equity + Long term liabilities * 100
2018: 2765/ 6755 * 100 = 40.93%
2019: 2305/ 8111* 100 = 28.41%
(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: Inventory / Cost of goods sold * 365
2018: 350 / 6500 * 365 = 19.65 days
2019: 674 / 8235 * 365 = 29.87 days
(vii) Receivable collection period: Average account receivables / Net credit
sales * 365 days

2018: 760 / 10000* 365 = 27.74 Days
2019: 1340 / 11500* 365 = 42.53 Days
(viii) Payable payment period: Average account payable/ Cost of goods sold *
365 days
2018: 920 / 6500 * 365 = 51.661 Days
2019: 495 / 8235 * 365 = 6.010 Days
B) EXPLAIN POSSIBLE REASONS FOR OBSERVED CHANGES IN FINANCIAL RATIOS CALCULATED
FOR TWO YEARS.
(i) Possible reasons for declining Gross profit margin:
 Decline in selling price of goods without any fall in cost of goods sold by
company might be a possible reason for decreasing gross profit in Panini ltd
company (Bose, Dong and Simpson, 2019).
 Another reason which might be affecting gross profit margin is markup policies
set by Panini ltd company.
 Rising costs related to goods sold by Panini ltd company might be a possible
cause for decreasing Gross profit margin.
(ii) Causes for Decrease in operating profit margin:
 Decrease in sales held by a company over years: There are many reasons which might
lead to a situation reflecting declining operating profit. It might be the case of less sales
generated by Panini ltd company next year.
 Higher operating costs: Operating profit would decline in obvious ways if the costs and
expenses increase in relation with Panini ltd company. It is important for organisation to
increase profit and decrease costs which would in return increase net profit.
(iii) Reasons behind declining Return on capital employed:

 Poor use of capital resources: It might be one of the reasons behind decreasing ROCE
in Panini ltd company. It can be improved and resources can be allocated to its best
possible uses for increasing efficiency and effectiveness (Offodile and et.al., 2020).
 Increasing liabilities: If liabilities and debts of a company increases it might lead to a
problematic situation for Panini ltd company as it would affect return on capital
employed in adverse ways.
(iv) Causes for Increasing current ratio observed between 2 years:
 Paying off liabilities: It might be possible that Panini company is covering its
debts and paying off its liabilities quicker than previous year and thus it might be
a reason behind increasing current ratio in next year.
 Management of receivables and payables: Panini ltd company is expected to
manage its receivables and payables well in time which is helping it to increase
the current ratio so far calculated for 2 years (Marchant and Harrison, 2020).
(v) Reasons behind Increase in quick ratios in a business:
 Rising sales: There are situations which lead to increased sales margin in a business over
a period of time thus it might be the case in Panini ltd as well. Rise in sales would be
affecting the quick ratio to change in next year.
 Managing Inventory turnover: Increasing inventory turnover can be a reason which
would be stated in case of Panini ltd company and thus it might be the reason behind
increase in quick ratios as well.
(vi) Causes responsible for Increasing inventory turnover days:
 Eliminating use of obsolete inventory items: Inventory turnover days can be
increased if the Panini ltd company replaces old and obsolete machinery with new
ones.
 Managing production level: It is necessary for Panini ltd company to manage its
production level in the market because it would affect the growth and working of

business in economy. Therefore, it might be a possible reason behind rise in
inventory turnover days calculation so far.
 Cutting down costs: There would be times when the costs and expenses incurring
in company have been reduced which affected inventory level in Panini ltd
company as well. Thus it can be held liable for rising inventory turnover (Smith,
2020).
(vii) Reasons behind Rising Receivable collection period:
 Reduction in efforts for collection of money: Rise in receivable collection period would
be because of less efforts made for collecting money by the Panini company. Thus It led
to situations such as Rising the scale of receivable collection time.
 Mismanagement of Credit policy: It is important for every company to manage its credit
policy efficiently which would help to improve its collection period of funds from market
better used at the places enhancing growth and expansion of Panini ltd in economy.
(viii) Causes for falling Payable payment period in a organisation:
 Payment towards supplier is slow: There are many reasons responsible for declining
payable payment period in Panini ltd company and among them one could be delay in
payment towards vendors and suppliers of stock and material (Thakur and Kumar, 2018).
 Bad financial conditions: One more reason which can be stated fir the effect of falling
payable period is worse credit policies and financial conditions as well. In case of Panini
ltd company which is more focused on expansion and growth in coming years it is
important for them to improved its finance related conditions and situations in
environment (Gupta and et.al., 2021).
CONCLUSION
From the above asserted report, it can be concluded that Finance and accounting plays a
very important role in success journey of company. It has many functions, roles and duties
assigned for improving performance of business over years. It also helps to evaluate its present

work and predict future risks as well. There are many ratios which are calculated above that
provide a base for comparing business present results with that of previous one’s. It also helps to
serve as a guide to investors and managers to understand if the company is performing according
to their expectations and if not which areas must be improved for better functioning. It also helps
to measure growth and expansion of company. It serves as a method that helps to find out ways
to generate and collect funds.

REFERENCES
Books and Journals
Al-Sartawi, A.M.M., 2018. Online financial disclosure, board characteristics and performance of
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Bose, S., Dong, G. and Simpson, A., 2019. The financial ecosystem. In The Financial
Ecosystem (pp. 19-46). Palgrave Macmillan, Cham.
Durband and et.al., 2018. Financial Counseling. Springer.
Gaitonde and et.al., 2019. Financial burden of recurrent urinary tract infections in women: a
time-driven activity-based cost analysis. Urology. 128. pp.47-54.
Galvão, R.M.M., 2021. Financial Analysis and Value Creation: A Case Study. In Handbook of
Research on Reinventing Economies and Organizations Following a Global Health
Crisis (pp. 244-271). IGI Global.
GROSU, M., ROBU, I.B. and ISTRATE, C., 2020. The Quality of Financial Audit Missions by
Reporting the Key Audit Matters. Audit Financiar. 18(157).
Gupta and et.al., 2021. A hybrid MCDM approach for evaluating the financial performance of
public sector banks in India. International Journal of Business Excellence. 24(4).
pp.481-501.
Marchant, C. and Harrison, T., 2020. Emerging adults' financial capability: A financial
socialization perspective. International Journal of Consumer Studies. 44(2). pp.99-110.
Nicholls, J.A., 2020. Integrating financial, social and environmental accounting. Sustainability
Accounting, Management and Policy Journal.
Offodile and et.al., 2020. Contralateral prophylactic mastectomy in the era of financial toxicity:
an additional point for concern?. Annals of surgery. 271(5). pp.817-818.
Smith, A., 2020. Cognitive decision-making algorithms, real-time sensor networks, and Internet
of Things smart devices in cyber-physical manufacturing systems. Economics,
Management, and Financial Markets. 15(3). pp.30-36.
Thakur, M. and Kumar, D., 2018. A hybrid financial trading support system using multi-
category classifiers and random forest. Applied Soft Computing. 67. pp.337-349.
Wierzbitzki, M., Seidens, S. and Rudolf, M., 2019. Financial attitudes, behaviours, and the
disposition effect. Behaviours, and the Disposition Effect (February 21, 2019).