BM414 - Financial Decision Making: Financial Statement Analysis

This report provides an overview of finance and accounting functions within a company, emphasizing their significance in various tasks, roles, and responsibilities. It delves into the importance of accountancy in recording operations, evaluating outcomes, and maintaining income and expenditure records. The report also explores financial management's role in decision-making and controlling the business environment, highlighting monetary obligations such as tax management and strategic instruction. Furthermore, it discusses different methods for financing a firm's development and progress, including retained earnings, obligations, and shareholding strategies. The analysis includes calculations of financial ratios like gross profit margin, operating profit margin, return on capital employed, and liquidity ratios, explaining the changes in these metrics over two years for Panini Ltd., a bread manufacturing company. The report concludes by emphasizing the importance of efficient resource utilization and financial management for sustainable growth and profitability.

Financial decision
making

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Assess the significance of accountancy and fiscal linked activities, responsibilities, and
positions in a business.................................................................................................................1
Explain different methods for financing the firm's development and progress...........................3
TASK 2............................................................................................................................................4
Calculation of ratios.....................................................................................................................4
Describe why the monetary metrics computed over the last 2 years have changed....................5
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
The following research gives an outline of how finance and accounting functions in a
company (Ahmed, Manwani and Ahmed, 2018). It assists in establishing which tasks, jobs, and
duties would be most important in a firm. The research then moves on to Panini ltd, a moderate
sized company which focuses in making breads for UK stores. As a consequence of its present
success, it plans to expand its operations and operations in the next seasons. It also helps to
understand the significance of the percentages generated below that provide a wider and much
more efficient representation of the business over duration. It also assists in the identification of
other kinds of funding which could be utilised for future growth and profitability.
TASK 1
Assess the significance of accountancy and fiscal linked activities, responsibilities, and positions
in a business
Accounting can be described as the collecting, organising, and compiling of data in one
place, and also the recording of significant monetary transactions. Accountancy data, papers, and
studies aid firms in providing proper guidance for resource and confined capital management. It
can also be viewed as a system for keeping correct bookkeeping data and arranging fiscal related
areas. The basic purpose of accounting is to assess both employee and corporation performance.
As an outcome, it helps to determine the industry's commercial performance, as well as cash
input and flow all through the organisation's operational period. Dealers employ this to analyse if
it is beneficial to provide assets (Blue, 2017). Panini ltd benefits from a wide range of
accountancy functions. Here are only a few instances:
 Record important operations: It is essential for Panini ltd to maintain records of money in
addition to offer a clear and precise picture as to how the company operates in the
industry.
 Evaluate the outcomes: Accounting supports in the proper assessment of the Panini ltd.
company that is critical in guaranteeing a long company service life in a competitive
worldwide environment.
Accounting serves a number of functions which contribute to the financial and effective
operation of a business. Here are a couple such instances:

 Accounting assists in the selection of acceptable aspects by enabling Panini ltd to pick the
best alternative from a number of possibilities. It aids in finding the best option among
those offered to organisations in addition to identifying which would look to be more
profitable than rivals (Guo and Li, 2019).
 Maintaining record of income and expenditures: Accounting assists Panini ltd in
monitoring the movement of profits and expenditure related during the conduct of trade.
It also reveals the fundamental causes, reasons, and issues underlying undesired charges
and costs.
Accounting responsibilities involve the following:
 Assessing Risks and Financial Forecasts: There appear to be a range of jobs which have
to be accomplished in a Panini ltd firm, and accounting is the best approach to perform
such activities. It assists in identifying the firm's degree of unpredictability and also how
funds might be obtained for the group's prospective growth and expansion.
 Expenses should be tracked: Spendings are crucial to a company's performance.
Budgeting instruction and planning are aided by accounting. It also aids in the
implementation of the best possible alternative for Panini ltd and its ongoing evaluation.
 In contrast to accounting, finance is a broader concept which incorporates acts such as
obligations, lending, investment, and monetary transactions. Monetary management
relates to the management of revenue and funds which would be needed in the coming
years to carry out the operations essential for a corporation's existence and growth
(Kautsar and Asandimitra, 2019).
The following important tasks are listed to help individuals understand how important
financing is in each business:
 Choosing implementation is crucial for each company since it ensures that its decisions
are carried out at the right time. It exemplifies the Panini ltd company's strategy for
applying options to the required locations and evaluating them on a regular basis. The
results observed during a group's evolution are the result of a decision making.
 Controlling the Business Environment Outside of the Company: As many factors impact
any business, some are inevitable, such as external factors which can only be managed
and not controlled. In the case of Panini ltd, it is critical to give close regard to any
variables which can impede the organisation's efficient functioning.

Monetary obligations are assigned to every division in order to protect the company's
interests. Among some of the obligations associated with the finance system are the following:
 Taxes management is important. Taxation and levies that are not payed or managed on
time have had an influence on the company's development and approach. Such traits are
also important in the Panini ltd company, as they help investors and proprietors assess the
company's continuity and industrial performance (Killins, 2017).
 Provide specific instructions, as the monetary component is the basis for formulating
strategies, rules, and actions which would assist in the growth and expansion of the
organisation. Panini ltd also requires well-considered techniques to increase its growth
period and expand its operations into formerly unexplored regions.
Monetary Operations: Many fiscal tasks, involving monetary elements, are described below-
 Create funds since all businesses, big or small, need the development of crucial funds and
profits. It is clear that Panini ltd wishes to expand its commerce and operations, which
may need appropriate funds for creation and administration.
 Financial planning can be defined as the management of collected assets. It describes
how Panini ltd would invest its money in the right regions and in the adequate proportion
to accomplish the desired results throughout duration.
Explain different methods for financing the firm's development and progress
There appear to be several options accessible to help the companies raise funds for expansion
and commercial growth activities. Panini ltd's aim is to expand its industry on a larger scale,
therefore it requires technologies to help with something like that. Here are a few examples of
how it could be utilised as a tool:
 Maintained earnings are gains which can be used to give forth dividends to shareholders
at a future date. It might alternatively be described as an income statement retained over
an amount of time (Koto and Pulungan, 2017). This might help Panini ltd. provide funds
for research and development, preserve fiscal stability, and raise the company's stock
value. As a consequence, it represents the overall amount of shares held by the
corporation. This would be especially advantageous since the company would not have to
search for alternatives which could generate revenue and incur any unfavourable
expenses in the midst of its growing time. It is recognised as one of the most successful
methods of providing monetary support to a business.

 Obligations are a low-cost method of financing which enables stockholders to earn a
higher return on their capital. If Panini ltd's lending provides to increase the company's
total prosperity, this can be regarded advantageous, as it would then help to generate
extra funds and revenues which can be utilised to progress the industry's expansion.
 A shareholding strategy for establishing a company's marketplace viability, and also a
framework for permitting prospective expansion and improvement (Li, Kou and Peng,
2016). Panini Limited Company could thus use this technique to acquire cash without
increasing the load of obligations and liabilities. Investment enables businesses to
generate income which could be used to generate additional money and apply it to the
best possible use. Firms really aren't constrained to the same extent that they would be if
they borrowed money from the sector or from fiscal institutions. It also helps to increase
client and employee engagement in the organisation, ensuring its longer
run sustainability.
TASK 2
Calculation of ratios
Gross profit margin: Gross profit/ Net sales * 100
2018 : 3500/ 10000 * 100 = 35%
2019 : 3265/ 11500 * 100 = 28.39%
Operating profit margin: Operating profit/ Net sales * 100
2018 : 2765/ 10000* 100 = 27.65%
2019 : 2305/ 11500* 100 = 20.04%
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%
Current Ratio: Current assets/ Current liabilities
2018: 1175/ 970 = 1.211 : 1
2019: 2110/ 512 = 4.12 : 1
Quick Ratio: Current assets – Inventory / Current liabilities
2018: 1175 – 350/ 970 = 0.85 : 1

2019:2110 – 675/ 512 = 2.80 : 1
Inventory turnover days: Inventory / Cost of goods sold * 365
2018: 350 / 6500 * 365 = 19.65 days
2019: 674 / 8235 * 365 = 29.87 days
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
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
Describe why the monetary metrics computed over the last 2 years have changed
The following are some of the reasons for a drop in gross profit ratio:
 A fall in item selling pricing without a commensurate reduction in the corporation's
production expense might be one cause leading to Panini ltd's reduced gross margin
(Paluri and Mehra, 2016).
 Panini ltd's selling strategies are another element which could affect gross profit ratio.
 The company's diminishing gross profit ratio could be due to rising costs related with
Panini ltd's products.
A few of the factors for a decrease in operating revenue percentage include:
 Decrease in a company's earnings throughout period, since there appear to be a number of
elements which could lead to a circumstance in which operating efficiency is declining. It
is probable that Panini ltd could generate less money the subsequent year (Phan, Rieger
and Wang, 2019).
 Increasing operating expenses: As the fees and expenses linked with Panini ltd's company
grow, operating revenue would worsen in a noticeable way. It is vital for firms to
increase earnings while decreasing costs, leading in increased total revenue.
A few of the reasons for the declining ROCE are as follows:
 Unproductive use of monetary resources might be one of the causes leading to Panini
ltd's falling ROCE. This may be improved, and funding might be allocated to the most
effective and practical implementations to boost productivity and profitability.

 Rising liabilities occur as a company's commitments and lenders increase; this could
provide a problem for Panini ltd because it would have an adverse influence on its ROCE
(Ul-Hameed, Mohammad and Shahar, 2018).
Explanation for the growing current ratio over the last 2 years include:
 Panini is probably returning its liabilities and carrying back its agreements quicker this
year than previous year, which can indicate why the proportion is predicted to increase
the subsequent year.
 Panini ltd is expected to manage its borrowers and obligations in a regular fashion, which
is supporting it in raising the ratios calculated over the previous 2 years.
The firm's quick ratio has increased as a result of the underlying factors:
 Rising sales profitability since there are situations which can lead to an increase in a
firm's sales profitability over time, and this can be the case with Panini ltd as well. In the
following year, higher sales would have an effect on the acid test ratio.
 Limiting stock turnover is perhaps one of the factors mentioned in the case of Panini ltd,
and it may well be the basis of an increase in acid test ratios.
The aforementioned variables contribute to higher inventory turnover days:
 Inventory turnover days might be increased by updating obsolete inventory quantities as
Panini ltd replaces unproductive and obsolete systems with new technology.
 Managing production volumes is crucial for Panini ltd's progress and administration in
the sector because it would have an influence on the company's growth and management.
As a consequence, one of the explanations for the present rise in inventory turnover days
calculations can be this (Valizadeh Larijani and Behbahaninia, 2019).
 Lowering costs, as there have been times when the company's expenses and costs have
been reduced, which seems to have an effect on Panini ltd's inventory situation. As a
response, it may be held accountable for increased inventory turnover.
The foregoing are some of the reasons for the longer trade collection period:
 Fewer efforts to collect cash as Panini Firm's efforts to retrieve payments have lessened,
leading in a lengthier receivables collection period. As a consequence, situations such as
expanding the range of trade collecting period have evolved.

 Poor repayment period management, as it is vital for each company to correctly manage
its repayment schedule, would help in enhancing the collection length of revenue from
the industry, enabling Panini ltd to grow and flourish in the industry.
A few of the causes why a firm's payable payments period is decreasing are as follows:
 Delayed contributions to stock and technology suppliers and vendors are among the
elements contributing to Panini ltd's poor payables payments period (Yuniningsih,
Pertiwi and Purwanto, 2019).
 Additional factor contributing to the effect of shorter repayment terms is the deterioration
of borrowing legislation and corporate situations. In the case of Panini ltd, which is
focused on long-term growth and achievement, it is vital for the company to improve its
fiscal situation as well as its sustainability problems.
CONCLUSION
Monetary and accounting services play a key role in an institution's expansion, as seen by
the preceding facts. It has been assigned a variety of duties, jobs, and duties in enhancing
business productivity throughout time. It also assists in the assessment of existing activities and
the forecasting of potential threats. Many of the already developed data act as a base for
comparing present firm results to that of earlier periods. It also provides as a benchmark for
investors and businesses to determine if the company is fulfilling its objectives and, if not, what
things have to be changed to boost efficiency. It also helps to determine the business's growth
and performance. It is a means of assisting in the development of innovative ways to generate
and obtain cash.

REFERENCES
Books and journals
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Blue, L., 2017. There are serious problems with the concept of ‘financial literacy’. The
Conversation. pp.1-3.
Guo, X. and Li, J., 2019, October. A novel twitter sentiment analysis model with baseline
correlation for financial market prediction with improved efficiency. In 2019 Sixth
International Conference on Social Networks Analysis, Management and Security
(SNAMS) (pp. 472-477). IEEE.
Kautsar, A. and Asandimitra, N., 2019. Financial Knowledge as Youth Preneur Success Factor.
Journal of Social and Development Sciences. 10(2 (S)). pp.26-32.
Killins, R.N., 2017. The financial literacy of Generation Y and the influence that personality
traits have on financial knowledge: Evidence from Canada. Financial Services Review,
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Koto, M. and Pulungan, D. R., 2017. The financial literacy of students and investment decisions
in the Indonesia stock exchange. Proceedings of AICS-Social Sciences. 7. pp.305-311.
Li, G., Kou, G. and Peng, Y., 2016. A group decision making model for integrating
heterogeneous information. IEEE Transactions on Systems, Man, and Cybernetics:
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Paluri, R.A. and Mehra, S., 2016. Financial attitude based segmentation of women in India: an
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Phan, T.C., Rieger, M.O. and Wang, M., 2019. Segmentation of financial clients by attitudes and
behavior. International Journal of Bank Marketing.
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financial services and women-empowerment: The role of vulnerability. Management
Science Letters, 8(10), pp.1103-1116.
Valizadeh Larijani, A. and Behbahaninia, P.S., 2019. Investigation of Effective Items on Stock
Return: Different Aspects effecting on Decision Making. Journal of Financial
Accounting Knowledge. 5(4). pp.69-102.
Yuniningsih, Y., Pertiwi, T. and Purwanto, E., 2019. Fundamental factor of financial
management in determining company values. Management Science Letters, 9(2),
pp.205-216.