Financial Principles and Techniques Report - Module Finance

This report provides a comprehensive analysis of financial principles and techniques, focusing on their application within an organization. It begins by examining the importance of costs in pricing strategies and the design of effective costing systems, including job costing and process costing. The report then delves into forecasting techniques for making cost and revenue decisions, exploring both qualitative and quantitative methods, as well as judgmental approaches. Budgetary planning and control are addressed, with a focus on setting targets, creating master budgets, and monitoring expenditures. The report also covers cost reduction strategies, including activity-based costing, and various financial appraisal methods for analyzing investment projects. Furthermore, it assesses the use of financial statements and ratios to evaluate financial viability and improve the quality of financial information. Finally, the report concludes with recommendations on strategic portfolio management for an organization, using Sainsbury as a case study.

Managing Financial
Principles and
Techniques

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
1.1 Importance of costs in the pricing strategy of an organization:.............................................3
1.2 Design a costing system for use within an organization........................................................4
1.3 Improvements to the costing and pricing systems used by an organization..........................5
TASK 2............................................................................................................................................6
2.1 Forecasting Techniques in an Organization to make Cost and Revenue Decisions..............6
2.2 Sources of Finance.................................................................................................................8
TASK 3..........................................................................................................................................10
3.1 select appropriate budgetary targets for an organization: ...................................................10
3.2 Participate in the creation of a master budget for an organization......................................12
3.3 compare actual expenditure and income to the master budget of an organization..............13
3.4 evaluate budgetary monitoring processes in an organization..............................................13
TASK 4..........................................................................................................................................14
4.1 recommend processes that could manage cost reduction in an organization.......................14
4.2 Evaluate the potential for the use of activity-based costing:...............................................15
TASK 5..........................................................................................................................................16
5.1 Financial appraisal methods to analyze investment projects in public and private sector...16
5.2 Strategic investment decision for organization through using financial information..........18
5.3 Audit appraisal.....................................................................................................................18
TASK 6..........................................................................................................................................19
6.1 Financial statements to assess financial viability of Sainsbury...........................................19
6.2 Financial ratios to improve quality of financial information for organization's effectiveness
....................................................................................................................................................21
6.3 Recommendation on strategic portfolio of organization.....................................................23
CONCLUSION..............................................................................................................................23
REFERENCE.................................................................................................................................24

INTRODUCTION
Financial performance of any organization represents entity's profitability and earning
power to formulate and implement strategies. It is related with firm's effectiveness and enhancing
its efficiencies at high level. The present report is based on understanding different financial
reports and techniques to analyze economic structure as well improving quality services for
further implementation of Sainsbury. It is public retail sector large scale supermarket chain of
UK that provides groceries and food items. However, pricing strategies and costing systems are
to be described. Including this, different forecasting and decision making tools for implementing
further business operation can be determined. Moreover, budgetary planning system and costing
methods for strategic planning procedure and making decisions regarding business activities can
be recognized. In addition to this, various financial appraisal methods and technqiues for
adequate investment is to expressed through this assignment.
TASK 1
1.1 Importance of costs in the pricing strategy of an organisation:
Pricing Decisions: Ho much company spend to produce a unit of product is valuable
when figure out the sales price. If Sainsbury Company want to compete on price, than they have
to keep price of product as low as possible. But if product is sold at cost less then manufacturing
cost then they cant go for long in market. So while selling it is important to keep price not to
high and not too low and at this point of time different cost concept is used to fix adequate price
(Bakand, Hayes and Dechsakulthorn, 2012).
Preparing Financial Reporting: Adherence to more specific cost technique are require
under General acceptance Accounting Principles. For external financial reports purpose and
GAAP require all manufacturing cost that incurred in manufacturing goods. Costing system that
behave cost in this manner are called absorption technique, full cost costing, traditional system.
Helpful in Budgeting: Cost concept also help in budgeting and budgetary control. There
are various tools used in budgetary control. Fixed, Variable and Zero base budget (Bartram,
Brown and Waller, 2016). With this budgeting system financial requirement can be fulfilled
within limited resources and maximum utilisation of financial sources can be made possible and
from it, pricing of product that is ready for sale in market is optimised.

Many business decision requires a firm knowledge of several cost concept. Different
type of cost having different characteristics. Consequentially when reviewing a business case to
determine which way to choose it is important to understand following cost concept to choose.
Fixed, Variable and Mixed cost: A fixed cost such as rent, does not changes in with level
of activity. In opposite to it variable cost such as direct material is changeable with level of
activity. Those few cost which changes somewhat with activity are included in mixed cost
(Battiston and et.al., 2016). It is important to understand the differences, since the decision to
alteration in level of activity may or may not alter cost. For ex, shutting down a facility may not
terminate associated building lease payment which are fixed since duration it was leased.
Marginal cost: It is total of variable cost i.e., prime cost plus variable overhead. It is bsed
on difference between fixed and variable cost. Fixed cost are ignored variable cost are
considered for determining cost of production, work in progress and value of finished goods
(Caspin and et.al., 2013).
Out Of pocket Cost: It involves payment to outsiders such as increase in cash expenditure as
proportionate to cost of depreciation, which does not concluded any cash expenditure. Such cost
are used in price fixation at time of recession or when make or buy alternative option of decision
is made.
1.2 Design a costing system for use within an organisation
A costing system is designed to monitor the cost incurred by the business. Whole business
system is connected to sat of forms, process, control and reports that are designed to aggregate
and report to management revenues, cost and profitability. Areas included in can be any part of
the company, including Customers, Department, Facilities, Process, Product and services,
Research and development, Sales etc.
There are two main type of costing system. A business can circulate information based on either
one of these or mixed that is called hydride system that mix match system to meets its need.
Job costing System: Material, labour, and overhead are compiled from individual unit or job.
This approach best for unique purpose such as custom design machine or consulting projects. It
is highly detailed and labour intensive (Cheng, Ioannou and Serafeim, 2014).
Process costing System: Material, Labour and overhead are totalled for an entire production
process and then are allocated to individual production unit, processing of milk, Petroleum

products, Cell phone manufacturing are part of process costing where production done at large
level. Cost accumulated is highly efficient and divided in no. of units per batch is possibly be
automated.
 Differential Cost: Change in cost due to change in level of activity,pattern, technology,
process or method of production is known as differential cost. If any changes proposed or
happened in existing level or method of activity of production, the increase or decrease in
total cost because of decision is known as differential cost (Chhokar and et.al., 2013). If
changes increase in cost, it is called incremental cost and if there is decrease in cost
results from decrease in output the result is known as decremental cost.
 Sunk Cost: Sunk cost is irrevocable cost and is caused by complete abandonment or
shutting down of plant of business. It is written down value of abandoned plant less its
salvage value. Such cost are historical cost which are incurred in past and are not relevant
for decision making and are not affected by increase or decrease of volume of output.
Thus expenditure which has taken place is irrecoverable in a situation is treated as sunk
cost. Such cost included depreciation of fixed assets (Clark, Gilbert and Ca, 2014).
 Opportunity cost: It is maximum possibility alternatives earnings that might have been
earned if productivity capacity or service had been put to some alternative use. In simple
words it is advantage in measured term gone due to not using other alternatives that could
have generated more profit then current cost. For example, If owned building is proposed
to be used for projects then rent on building is considered to be an opportunity cost while
taken into consideration the evaluation of the profitability of projects. PASS
1.3 Improvements to the costing and pricing systems used by an organisation
Improvement in costing to good financial management: Ability to identify, interpret and present
cost as they are related to organisational economic flow of goods and services, both historical
and forward looking context, is necessary for an informed understanding of the organisational
driver of profit and value (Midrigan and Xu, 2014).
Material cost effectiveness: The designed, implementation, and continuous improvement of
costing method, improvement in data collection and system should reflect a balance between the

required level of accuracy and the cost of measurement (cost benefits tradesoff) depends on
competitive situation of the organisation.
Time and Consistency: Cost information should be collected and analysed in systematic manner
so as to ensure comparability over time, whether in routine information system, or for specific
application and or purpose (Park and Park, 2014).
Transparency and auditability: Definition and source of data, the operational and other non
financial data and method of calculating cost needs to be transparent to customers and recorded
and capable of review, risk analysis and assurance.
 Replacement cost: It is cost at which there is purchase of assets or material exactly
replica that would have been replaced or re-evaluate. It is cost of replacement at current
market value.
 Avoidable and unavoidable cost: Those cost which are avoided if particular product or
department with which they are directly related is discontinued. For ex, salary salary of
clerk belongs to department employed is eliminated if that department is discontinued.
Unavoidable cost is opposite to avoidable cost which is not been avoided even with
discontinuation of projects or department (Park and Park, 2014). For ex, Salary of factory
manger, factory rent etc.
TASK 2
2.1 Forecasting Techniques in an Organization to make Cost and Revenue Decisions
Forecasting means predicting about the future on the basis of past and present data and
the trends followed by the organisation.
Types of Forecasts :-
 Economic Forecasts
 Technological Forecasts
 Demand Forecasts
Categories of Forecasting Methods :-
A. Qualitative v/s Quantitative Method – Qualitative Method is a technique based on
opinions, judgements, intuitions, emotions, or personal experiences, and also is subjective in
nature. Whereas, Quantitative Method of forecasting is based on mathematical(quantitative)

models, and is also objective in nature. This method of forecasting heavily relies on
mathematical computations (Pasquariello, 2014).
B. Time Series Method – Time series method uses the historical data as basis for
forecasting future outcomes. It's objective is to draw a pattern in the past values of the data. This
method is useful only when historical data is present and there is no change in the pattern of
historical data. This method of forecasting thus cannot evaluate any kind of change in the future
outcome if there is any kind of change in the value of the variable.
Kinds of Time Series Methods :-
 Moving Average
 Weighted Moving Average
 Kalman Filtering
 Exponential Smoothing
 Trend Estimation
 Linear Prediction
 Extrapolation
C. Judgmental Methods :- Judgmental forecasting method comprises of opinions,
subjective probability estimates and also intuitive judgement (Segal, Shaliastovich and Yaron,
2015). This method of forecasting is used in a newly formed organisation or in an organisation
where there is lack of historical data which cannot be used for forecasting.
Judgmental Method Includes :-
 Composits Forecasts
 Cooke's Method
 Delphi Method – It developes forecasting through group consensus.
 Forecast by Analogy; Is a method assumes that two different kind of phenomena shares
same model of behavior. For ex one way to predict the sales of new product is to choose
an existing product which looks like same product in term of expected demand pattern of
sales product. Like launch of Samsung galaxy s8 plus predicted to launch of Samsung
galaxy s7 exactly same in look and feel but with software optimization.
 Scenario Building – It is the process of considering alternative outcomes in process of
analyzing future events. For ex.

 Market Surveys – Market surveys comprises of use of questionnaire to be filled by the
market elements to identify their testes of new products and services. FMCG product are
launched on basis of market survey to identify customer taste and preference. On this
basis new product are launched.
D. Naive Approach :- The Naive approach of forecasting is the most cost effective
forecasting model. This approach provides a benchmark against which comparison between
different models is been done. The Naive forecasting approach is most suitable for time series
data.
E. Other Methods :- Their are certain different methods of forecasting in an organisation
which can be used for the betterment of the organization's functioning and growth of the
organization:
 Simulation: It can be define as process of creating model of existing or proposed system.
Like business, a mine, a watersheds, forest, fisheries etc. in order to identify . those
factors which control system and to predict future behavior of system. For ex. Fisheries
biologist dynamically simulate salmon population in river in order to predict changes in
population of salmon fish for possible actions, like fishing loss of habitat to ensure that
they do not go in extinct in some point in future
 Prediction Market
 Probabilistic Forecasting, and
 Ensemble Forecasting.
Above mentioned forecasting methods are useful for preparing planning and making
decisions for further business activities. According to analysis of current business performance,
different ideas are provided for implementing strategies effectively. In this regard, forecasting for
next years is provided by recognizing financial data including balance sheet, income statement,
ratio analysis and so on. Thereby, tools and techniques are applied for predicting data related to
future operations systematically. In addition to this, according to ratio analysis, it is analyzed that
in 2015, company's financial position was not so good due to improper production and
supplement of goods. While, in 2016, through implementing strategies, there is recovery in bad
quality services of organization is created by which further implementation and Sainsbury's
growth can be achieved at efficiently. Thus, applying forecasting techniques is quite effective for

organization regarding predictions and overall development of entity systematically that affects
further targets including sales, profit and so o to improve efficiencies of organization effectively.
2.2 Sources of Finance
Finance is the most essential requirement for an organisation's growth, it's expansion and
also it's development. Finance is the core element in an organisation's working. Finance can be
made available for an organisation from sources such bas internal as well as external sources. It's
organisation's choice from where to get the funds as it is crucial to select the most appropriate
source as different sources carry different costs (Senge, 2014). Sources of finance can be
classified as Internal or external, long term borrowing's and short term borrowing's, debt, equity,
etc.
As per the given case scenario, it is analyzed that Sainsbury is trying to establish its 20
new branches across UK by 2017-18. Therefore, accomplishing this project, sources for
allocating funds are recognized to get adequate money for implementing set strategies. In this
regard, following sources are identified to allocate fund as:-
Internal Sources of Finance:
Internal sources of finance are the funds which are available with the organisation ie.. the self
generated funds within the organisation.
 Retained Earnings/Profits - It is the internal source of finance as it is the profit kept
with the organisation after paying the dividends to the shareholder's and drawings. It is
also termed as Ploughing back of profis.
 Sale of Assets - It is an another internal source of finance as whenever organisation is in
a need of funds and an asset is abandoned it can be sold and cash can be generated for the
projects. It also reflects as long term and short term finance (Stevens and Whittle, 2016).
Suppose when a car is sold it reflects short term finance and when a land, building or a
machinery is sold it ensures the long term borrowing for the organisation.
External Sources of Finance:
External sources of Finance are the funds which are been arranged from outside the business. It
generally includes long term sources and short term sources.
A. Long term sources:

 Equity share capital – It is the most important source of finance for a company. It is
raised through the organisation's shareholders. It is called as permanent capital but the
shreholders receive a share in profits in the form of dividends. The most important key
feature of equity share capital is sharing of ownership right, which dilutes the right of
current shareholders to some extent (Subrahmanyam and Titman, 2013). There are 2
different types of shares :- Ordinary shares and Preference shares.
1. Ordinary shares - Ordinary shares are the most common shares as been hold by the
ordinary shareholders whether in any company or organisation. In these kind of shares dividend
depends on the profit earned by the organisation. But holders of ordinary shareholders carry
voting rights.
2. Preference shares – Preference shares carry a less risk than the ordinary shares as they
are not the owner's of the company or been an organisation. Though they are offered a fixed rate
of return which may be less than that of ordinary shareholder's.
 Long term Debt – One of the major sources of long term financing is long term debts.
These debts are generally been taken for a period more than a year. An advantage of
these kind of loan is that the can be repayed over the period of time.
 Debentures – Some lind of loans are are secured by a fixed or floating charge against the
organisation's assets, such kind of loans are called Debenture loans. Debenture holder's
receive their interest before any dividend paid to the share holder's and in case debenture
holder's are not paid they will be treated as the preferential creditors (Valackiene, 2015).
B. Short term sources:
 Bank Loans – These kind of laons require a rigid agreement between the bank and the
bowwower. The amount should be paid within a certain period of time as specified in the
agreement.
 Bank Overdraft – Businesses now-a-days require cash on a daily basis because of a
certain gap between it's collection and payment. Thus Bank overdraft is the easiest mode
of short term financing in an organization.
 Retained earning – It is accumulated as net income of corporation that is retained by
corporation at particular point of time, such as at the end of reporting period. retained

earning prefers to percentage of net earning not paid as dividend but retained by company
to reinvest in its core business or to pay debts. Re= Beginning re+ net income-dividends.
 Sales of assets – Company can make or raise money from sales of assets, like sale of
premises, building, plant or machinery
Above mentioned all sources are analyzed to allocate fund for expansion of Sainsbury by
establishing new branches. However, for setting up 20 new branch requires high level of fund
therefore critical evaluation on each source is needed. In accordance to this, by taking advantage
of loan from financial institute as bank and using reserved cash as retained earning for getting
sources to implement plans to establish new branches. However, by allocating funds through this
sources will be able for financial management related to achieving high level of fund for
effectiveness of Sainsbury.
TASK 3
3.1 select appropriate budgetary targets for an organization:
Budgetary control is the process of determining various actual results with budgeted feature for
enterprises for future period and standard set then comparing the budget with actual performance
for calculating variance (Clark and Gilbert, Ca, 2014). Budgetary control is system of cost
controlling which include preparation of budget, coordinating and controlling department and
establishing responsibilities, comparing actual performance with budgeted one and acting onto it
to achieve maximise profitability. In short planning in advance so as whole system can be
controlled.
Some few budget are Fixed,Variable and zero based budgeting.
 Fixed budget is budget which is designed to remain unchanged irrespectively with the
level of activity. It is based on single level of activity. This budget's performance report
compare data from actual operation with single level of activity reflected in budget. It is
based on assumption that company will work on some level of activity and specified
production can be achieved
 Flexible budget is defined as a budget which recognise the difference between fixed,
semi-fixed and variable cost is change as per change in level of activity. It is also known
by other name like variable, dynamic etc (Pasquariello, 2014).

Flexible budget would be the best for Salisbury as it is considered all cost related to
manufacturing goods and services like Fixed cost variable cost and semi variable cost. So
company can use it meeting the production need and requirement of the company.
 Zero based budgeting is method of budgeting in all expenses are clarified for each new
period. It starts with zero base and all function in an organization are analyzed for
demand and cost.
The above budget is Financial budget which meet the requirement of the Sainsbury and
budget is prepared as per the financial performance of the company.
Target Setting: To set the target the company financial budget has been made so that
Sainsbury can meet the financial need and plan production process as their objective of achieving
high profit and selling Products.
Particulars Budget
Opening 1242
sales 25857
Other income 15000
Total 27099
Cost of sales 24564
Sales, general and administration expense 1034
Other overheads 1000
Total 26598
Net cash (deficit/Surplus) 501
So budget for Sainsbury company Sales was 23507 and increased to 10%. Other income remains
at 15000 and total is 27099. Sales and Admin. exp is fixed at 1034 other overhead is budgeted at
26509. So net cash is 501.
3.2 Participate in the creation of a master budget for an organisation
Master budget is comprehension projection or interconnected budget of sales, production
cost, purchase and income etc. and also include financial statement. A budget is future financial
transaction planning. Master budget serves as a planning and controlling tool to the management
since they can plan the business activity during the period on the basis of master budget. At the
end of each period actual budget can be compared with master budget (Segal, Shaliastovich and
Yaron, 2015).

Master Budget can be used by Sainsbury to solve all financial need of sales budget,
production budget, overhead budget, expenditure budget and income budget to maintain the
cash flow in the company, required inventory stock and proper allocation of resources
Particulars Budget
Opening 1242
sales 25857
Other income 15000
Total 27099
Cost of sales 24564
Sales, general and administration expense 1034
Other overheads 1000
Total 26598
Net cash (deficit/Surplus) 501
Two components of Master Budget Included 3 major component expenses revenue and profit.
But in detailed it contain Sales budget, Production budget, Direct material purchase budget,
Direct labour budget, Overhead, Selling and administration expenses budget, cost of goods
manufactured budget.
Financial Budget: Financial budget includes information about how business will go about
acquiring cash inflow and cash outflow and how will it spend cash at that period of time. One of
the major section of financial budget is cash budget. Capital expenditure budget is another type
of Financial budget that deals with major upcoming expenses. Scheduled expected cash receipt
from customer, expected cash payment, Cash budget, Budgeted income statement, Budgeted
balance sheet are included in it.
3.3 compare actual expenditure and income to the master budget of an organisation
All transaction related to company like retail are included in book of account strictly according
to double entry system. At the end of the year result obtained through final account. It include
two type of accounting Income and expenditure and balance sheet (Cheng, Ioannou and
Serafeim, 2014).
The account through which surplus or deficit of company is concerned as Income and
expenditure account. All necessary journal entries are entered in ledger account. Its left hand is

debit side record all revenue expenditure and right hand is credit side indicates surplus i.e.,
excess of income over expenditure. Conversely the balance of account if debit indicates deficit,
excess of expenditure over income.
Following are characteristics of Income and expenditure account are
 It it is fact like profit and loss account of profit seeking concern
 All experiences are recorded in debit side while all income are recorded in credit side.
 All revenue transaction are included in it. No capital items are taken into account.
 Its balance is transferred to capital account.
 It does not start with opening balance.

Particulars Budget Actual Variance
Opening 1242
sales 25857 23506 2350.6
Other income 15000 15000 0
Total 27099 23506 3592.6
Cost of sales 24564 22330.7 2233.07
Sales, general and administration expense 1034 600 434.264
Other overheads 1000 1000 0
Total 26598 23930.7 2667.334
Net cash (deficit/Surplus) 501 -1600
Comparing actual with budget figure the variance of sales is 2305. Other income is zero. cost of
sales is 2233 which is less then budgeted. So company needs to increase sales. Sales and Adm.
over head is 1000 and totaled is 23930 and variance is 2667 and in actual performance is deficit
in net cash. So company needs to follow proposed master budget to get in profit.
 Monitoring Process: regular monitoring of expenditure is essential, not just to verify the
expenditure against target but also to identify the changing pattern or circumstances that
need corrective actions. To monitor budget the few points need to be consider like:
Budget for the area of activity and specified date and year, actual expenditure to date,
balance o annual budget remaining, Forecasting outcomes. Analysis of expenditure of
any positive or negative variances and measure to correct it.

3.4 evaluate budgetary monitoring processes in an organisation
Budgetary monitoring process: Once cash flow are decided and allocated sunsbery needs tpo
have system in place to monitoring performance. The complex of arrangement for monitoring the
budget will depend on the size of company and availability of staff in organisation. Key process
to monitor budget is:
 Monitoring and reporting against internal budget on a consistent and regular besis
whether target are being met.
 Forecasting to manage gaps between estimates and actual budget in order to identify
quickly, and respond to changes in the external environment or internal activities (Senge,
2014).
 Reviewing and improving internal budget process by monitoring the accuracy and
timeless budget process to identify areas of improvement.
 Revising the internal budget through a coordinated process.
The Financial position of the Sainsbury in 2015 was not good but in 2016 the company
improved a lot in their financial performance. So the budget is prepared to meet the requirement
of the Company where the Financial balance of the company for the January is 5000, 13,700 for
the February, 9900 in March and 11300 in April.
TASK 4
4.1 recommend processes that could manage cost reduction in an organisation
Cost control: The process of monitoring and regulating the expenditure of funds is known as cost
control. In other words it means, to regulate control the operating cost in business firm.
Cost reduction is not concern with setting target and standards. Cost reduction is the final result
in cost control process. Cost reduction aims at improving the standards. It continuous, dynamic,
and innovative in nature, looking always for measure and alternatives to reduce cost. It is
corrective function. It is applicable to every activity of business. It adds thinking and analysis to
action at all levels of management.
As per the data and budget given closing balance is 5000 for company and caried forward
to February and in February opening balance is 5000 and closing is 10000 and in march and april
budget of company increasing by 15000 and 20000.

If we talk about flexible budget sales budget in january is 12000 balance is 5000, and 10,000 and
15,000 and 20,000. This suggested that Sainsbury company have to increase sales and cash flow
and sources of fund to meet the requirement of company.
4.2 Evaluate the potential for the use of activity-based costing:
Activity based costing is a way to allocate cost based on the amount of resources a
product or services consume. The use of ABS is important that provide customized product or
service. So in Sainsbury use of ABS is to allocate cost of all customized product by determining
actual indirect cost for products.
Advantage and disadvantages of activity based costing
1. Advantages: Activity based costing is a way to allocate cost based on the amount of resources
a product or services consume. The use of ABS is important that provide customized product or
service. So in sainsbury use of ABS is to allocate cost of all customized product by determining
actual indirect cost for products. An activity based costing allocated indirect cost based on
product driven cost.
 More accurate costing of product/services, customers, SKUs, Distribution channels
(Bakand, Hayes and Dechsakulthorn, 2012).
 better Understanding overheads
 Easier to understand for everyone
 Utilize unite cost rather then just total cost.
 Makes visible waste and non value added activities.
 Supports performance management and scorecards.
 enable costing of process, supply chain and value steams.
 Activity based costing mirror way work is done.
 Facilitates benchmarks.
Disadvantages or Limitation of activity based costing System: For Sainsbury disadvantage will
be Misinterpretation of data because reports produced by ABC system contain information such

as product margin, that vary from information report and traditional cost method so data can be
misinterpreted. Expensive implementation may be second disadvantages as to handle it assistant
needs to be hired and software implementation would be costing task.
 Implementing an ABS is a major project that requires substantial resources. Once
implemented an ABS is costly to maintain. Data must be allocated checked and entered
into system.
 It can easily be misinterpreted and must be used with care while using data.
TASK 5
5.1 Financial appraisal methods to analyze investment projects in public and private sector
Investment appraisal techniques for effective financial performance is beneficial to create
balance of incurred expenses and gained revenue. There are several methods used for choosing
best project planning such as average rate of return, pay back period, internal rate of return etc.
Therefore, economic growth of Sainsbury can be gained at high level that impacts on
organization's effectiveness. However, for public and private sector organization, investment for
projecting is obtained in different ways. In this regard, government interferes for public sector
entities while investment decisions for private sector company is taken by private individuals
(Bartram, Brown and Waller, 2016). Thus, different financial appraisal techniques are applied for
investment and getting sources for effective fund allocation.
Calculation of arr=
In project S ARR is 66.4%
In Project P ARR is 77.6% so here we select project P.

IRR and NPV in cash flow statement is 43.04% in project S and for project P 48.47 for
Sainsbury Co. So we select project P because its IRR is 48.47% which is higher.
5.2 Strategic investment decision for organization through using financial information
Manager of Sainsbury analyzes financial information through its tools such as; balance
sheet, profit and loss account, income statement, fund/cash flow statements and so on. On the
basis of these components analysis, investment decisions are taken for operating business
activities in future time. In addition to this, expenses and income are recognized for making
decisions regarding further business operations. However, by using financial information,
varieties of ideas are generated for economic stability and enhancing profitability at high level
(Cummings and Worley, 2014). Therefore, strategic decision making process is implemented for
strategic management and improving monetary position of entity efficiently. Thus, strategic
investment decisions are made through identifying financial information effectively.
So using financial statement, cash flow and IRR in 5.1 investment needed to be made on Project
P as in both the cases IRR/ NPV and ARR percentage is higher

5.3 Audit appraisal
Investment and decision making appraisal is recognized through audit appraisal
technique. In this regard, auditors and manager of organization analyzes financial performance
and further prepares strategies for increasing profit earning capacity. In addition to this, using
audit appraisal techniques are valuable to improving business performance and enhancing quality
services of organization at high level. Thus,audit appraisal is useful for recognizing actual
financial performance and increasing profit earning capacity of entity at high level (Stevens and
Whittle, 2016).
In auditing appraisal using cash flow and Project S will be preferred as its inflow total is 184200
compared to 166000.
Audit appraisal is related to analyzing performance of organization through implementing
selected project plans. In accordance to this, recognition of changes and improvements in
business operations are created that affects further task accomplishment regarding business
activities. In addition to this, comparison between actual and standard position of entity can be
achieved that affects effectiveness of Sainsbury at high level. Including this, Several ideas are
generated for improving its efficiencies and making decisions related to project planning
efficiently. In this regard, through audit appraisal, performance of organization is obtained by
which further implementations can be gained for increasing quality services for organization's
development. AS per auditing of project activities, it is analyzed that projection has been done
effectively and also all targets has been achieved in proper time schedule. It is interpreted that by
succession of project planning, all tools and techniques are applied effectively for projection.

Therefore, project planning and all activities has been achieved properly for effectiveness of
Sainsbury.
TASK 6
6.1 Financial statements to assess financial viability of Sainsbury
There are several financial statements obtained such as profit and loss account, income
statement, balance sheet and so on. Therefore, by analyzing these components, several ideas are
created for economic growth as well improving earning capacity of firm at high level. In addition
to this, financial viability is obtained through recognizing statements as well presenting income
and expenses status (Battiston and et.al., 2016). However, it is useful for making decisions and
preparing strategies related to effectiveness of Sainsbury. In accordance to this, financial
statement assessment is liable to improve organization's performance as well enhancing quality
services of firm effectively.
Below is the ratio analysis of Sainsbury Company its profitability, liquidity, efficiency and
solvency ratio.

So net profit margin is 2% in 2016 as compared to -.70% in 2015. Current ratio 0.66 as compares
to 0.64 in 2016 and quick ratio is 0.52 in 2016 as compared to 0.49 in 2015. So as per data
profitabitily, liquidity, efficiency ratios of Sainsbury co. is good in 2016 compares to 2015.
6.2 Financial ratios to improve quality of financial information for organization's effectiveness
Financial component as ratio analysis is valuable for presenting economic performance of
entity. In this process, overall business operations are created as well through profitability and
liquidity ratios. Therefore, improvement in monetary profile of organization is gained through
this tool for strategic decision making process. Moreover, comparison between last years
performance to present year's is determined that affects on entity's effectiveness. Thus, financial
ratios and their analysis is useful for making decisions and strategic management regarding
further business operations. In this process, quality performance and efficiencies of organization
get improved at large scale that is interrelate with overall management of all business operations
(Valackiene, 2015). Moreover, financial position of organization can be enhanced at high level
through this process. Including this, through liquidity and profitability ratios, different ideas are
generated for further implementation as well increasing efficiencies at large scale to improve
effectiveness of Sainsbury.
There are different kinds of ratios analyzed to present financial performance of
organization including profitability, liquidity, efficiency, debt solvency ratios and so on.
However, these ratios can be expressed as below:- Profitability ratio:- profit earning capacity of organization is recognized through this
ratio that evaluates as percentage of net profit to sales. However, according to this data
interpretation, it is interpreted that in 2015, profitability ratio is (-) 0.70% because of
excess of expenses on purchasing material in comparison to selling them. There fore,
production and distribution of goods and services get disturbed. While, in 2016, this
profitability ratio get enhanced to 2% that is quite effective in comparison to last year's
business performance. Thus, on the basis of current position, it can be forecast that in
future time, potential o f organization can be enhanced effectively.

 Liquidity ratio:- It presents liquidity position of organization that includes current and
quick ratio. Current ratio is measured through dividing current assets to current liabilities
of entity. In 2015, current ratio is 0.64 which increases in 2016 by 0.02 which is good for
organization's effectiveness. Hence, at present, liquidity position of organization is fine
that affects further implementation. Efficiency ratio:- it includes inventory turnover and assets turnover ratios that are
determines through cost of goods sold to inventory and revenue to total assets
receptively. However, sin 2015, inventory turnover ratio is 22.63% while in 2016, this
ratio is 22.78% which presents less difference in between both years' performances.
Including this, assets turnover ratio for 2015 and 2016 is interpreted as 1.44 and 1.38 that
is also moderate difference between two years.
 Solvency ratio:- In this process, organization's potential is presented for paying interest
and handling capacity for its losses. In 2015, debt to equity ratio is 0.42 while in 2016,
this ratio is evaluated as 0.32. An ideal debt equity ratio must not above 1 therefore,
company's potential is expressed regarding debt related terms. Moreover, interest bearing
ratio is measured though net profit to interest ratio that shows organization's efficiency
for paying interest on loan. In 2015, this ratio is (-) 0.92 while in 2016, this ratio is 2.82.
Therefore, in previous year, entity's financial position was negative to paying interest on
loan and providing interest on loan to its lenders and borrowers. While, in 2016, this
performance get improved this ratio analysis, company's performance is determined for
paying debt and long effectively so in further year by increasing financial position in
future time.
6.3 Recommendation on strategic portfolio of organization
Strategic portfolio is related to preparing planning and making decisions for further
business operations. However, it is helpful for improving quality services and making decisions
for effectiveness of Sainsbury. It is analyzed that manager of organization analyzes business
operations and its performance that leads to generate different ideas to enhance profitability that
affects several activities such as production and distribution of goods and services etc (Midrigan
and Xu, 2014). Therefore, it is needed for manager to formulate and implement strategies
regarding effectiveness and improving efficiencies. However, strategic portfolio is considered as

planning procedure tool for managing all business operations and improving them for better
quality services. It influences business and competitive strategies to improve efficiencies and
quality services at large scale. Thus, strategic planning procedure related to effectiveness and
proper management of all business operations are impacted on entity's business performance.
Including this, by following on all strategies and planning procedure, organization can reach out
its set target efficiently. Therefore, several positive outcomes and implementation can be gained
through this process system at high level. As per IRR and ARR Cash inflow project S needs to
be selected. As per financial statement and all ratio analysis performance has been measured
compered to previous results. So company need to carry on the ongoing process as per planed
budget.
It can be recommended for Sainsbury that the products by which effective profit gained
should be carrying or increasing percentage for profitability. However, for producing and
supplementing goods, by which loss is faces must be reduced that will impact on organization's
production and distribution system. It will be suitable for better quality services and effectiveness
of entity at high level. Therefore, strategic planning can be implemented by formulating
strategies for better entity's good performance. Thus, by making decisions in further years will be
effective for its sustainability and proper growth including financial and non-economic sector
efficiently.
CONCLUSION
The report is concluded that analyzing financial performance is crucial for improving
profitability and managing strategic resources adequately. In this regard, several decision making
tools are identified for further implementation and increasing quality services of Sainsbury.
Moreover, investment appraisal techniques and ratio analysis component for improving financial
performance of entity is recognized. In addition to this, budgetary targets and costing methods
are presented for increasing profitability of firm. Ratio analysis, viability analysis, Financial
statement and budget have been analyzed and its performance measured to previous year .
Whoever, decision making through investment appraisal techniques are determined effectively.

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