LFBM203 - Management Accounting: Financial Ratio & Investment Analysis

This report provides a comprehensive analysis of management accounting principles applied to three distinct companies: X-Square Financial LTD, York Manufacturing LTD, and Zebra Investment LTD. It examines the use of financial ratio analysis and sources of finance for X-Square Financial LTD, highlighting both the benefits and drawbacks of each. For York Manufacturing LTD, the report delves into cost and cost volume profit analysis, explaining how these methods can improve operational efficiency. Finally, the report evaluates investment appraisal techniques and cost of capital for Zebra Investment LTD, emphasizing their importance in project planning and financial decision-making. The analysis concludes that while each technique has its limitations, effective implementation is crucial for achieving organizational goals. Desklib provides more resources like this to aid students in their studies.

LFBM203 Assessment
Part 2

Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
Scenarios 1:..................................................................................................................................3
Scenarios 2...................................................................................................................................5
Scenarios 3...................................................................................................................................6
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Management accounting is the process of identification, measurement, analysis, interpretation
and communicate the monetary information to the top level management for pursuing the
objectives of the organisation (Pelz, 2019). By the help of this he organisation can be able to
coordinate all the function of the business effectively and efficiently. Due to this they are able to
run the operations without facing any issue or problems. This report includes the information
about the various company named as X- Square Financial ltd, York manufacturing LTD, and the
last one Zebra Investment LTD. All three companies are from different sectors. Further this
report also includes the different scenarios for each company. The analysis and suggestion for all
three scenarios are going to be discussed in the below report.
MAIN BODY
Scenarios 1:
The very first scenarios includes the information about the company known as X- Square
Financial LTD. This company is dealing in funding innovative and young businesses in UK.
The company use financial ratio and various sources of finance for improving the functions
of the organisation. It is possible that the financial ratios and sources of finance can improve
the operation of any type of business. The critical analysis of both methods of management
accounting are as follows:
1. Ratio Analysis- Ratios analysis is mathematical tool by the help of which the
organisations are able to identify their financial positions. It helps the organisation in
identifying the effective and efficient strategies so that the operations of the organisation
can be improved. Ratio analysis have various positives as well as negatives which are as
follows.
Positive of Ratio analysis:
 The very first positive ratio analysis is that it helps in determining the monetary
condition of the business.
 The next benefit of ratio analysis is that it supports the business in analysing the
efficiency of organisation.

The another positive point of ratio analysis is that it helps the businesses in determining
the liquidity and long term solvency of the organisation (Sudol, Ochoa and Synovec,
2022).
Negatives of Ratio analysis:
 For calculating the ratios organisation require the financial data of the previous
year which takes too much time.
 Financial data of the organisation are influenced by the hypothesis due to which
the reduce the comparability due to which the ratio analysis became less useful
for the organisation.
Sources of finance- Sources of finance are way through which the organisations like X-
Square Financial LTD can be able to arrange the monetary assistance for the operations
of the business (Chit, 2019). Due to the various sources the operations of the business
can run smoothly and effectively. Some merits and demerits of various sources of
finances are as follows.
Benefits of Sources of finance:
 The operations of the organisation cannot discontinue due to the various sources.
 The organisation did not face any issues related to the monetary term because due
to the various sources the organisation can generate the money easily whenever
they require.
Demerits of Sources of finance:
 Due to large number of sources the organisation cannot be determine quickly
that which sources is better for the business.
 It is a time consuming process because the organisation has analysed all the
sources before generating the finance in the business. This process takes too
much time and effort also.
After analysing both important parts of the management accounting it can have suggested that
the companies like X-Square Financial LTD should have to use both of them to improve
the operations of the business. Both of the part have some negative points also but these
negative point cannot overpower their benefits. If X-Square Financial LTD use these
two parts effectively then they can achieve their target easily without facing any trouble
(Gilligan and et.al., 2019)
.

Scenarios 2
The second scenarios include the company named as York Manufacturing LTD which is dealing
in washing machines. In this scenarios the company have use Cost and Cost volume profit
analysis for improving the operations of the business. The explanation of both of them are as
follows-
Cost-
Cost is a process of determining and assigning the cost to the elements of the business. this
ascertainment is done for the various stakeholders. This cost is used by the customers, other
departments, employees and by channels for distribution. Also used by geographical regions and
company itself. The costing includes the cost of variable, fixed cost and all the costs which are
needed to produce every single unit. Variable cost is determined as the difference in actual cost
and the standard cost. in this there will be change in the variable cost in every unit but the fixed
cost remains the same. Costing is used by the management to determine and increase its
profitability. there are different types of costing like process costing, job costing, production
costing. These cost are aggregated and applied to the large number or total products. It is to to
determine the single unit cost. With this analysation company determines the production scale
from single costing to reach the breakeven sales target. With this method company either
increases sales volume or decreases the variable cost (Pei and Xiong, 2022).
Cost volume profit-
cost volume profit is the method which ascertains that how company’s profit is affecting. It
shows the level that company should attain to reach the required level of profit. This affect is due
to the change in variable cost and difference in the quantity of sales. It is also known as break
even sales. In this, ever cost is analysed from every change in the production and it is also called
contribution. After contribution company can actually determine the profit or loss at the current
production level. It helps in determining the performance level of the company. after this it can
amend its production policies and procedures. The cost volume profit includes the variable costs,
margin of safety, change in degree in operating leverages and increase or decrease in the net
income. In breakeven sales, the net income is zero. As after the break even sales, it has to reach
the level of margin of safety. After attaining the level of margin of safety, company increases it
cost volume profit. as at this level sales are estimated, at what level the cost can be optimised.

After, analysing both of them it can be said that these two segment of the management
account helps the businesses in determining the operations of the business so that they
organisation like York Manufacturing LTD can achieve their target (Morrone and et.al., 2022).
.
Scenarios 3
The third and last Scenarios includes some information about the company which is named
as Zebra Investment LTD. This company is planning to start the project for which they need
to apply investment appraisal techniques and Cost of capital. Both of these methods
improves the operations as well as helps in determining the benefits of the project. The
critical evaluation of both techniques are as follows-
Cost of Capital-
It is the minimum amount or profit which the organisations have to earn before
producing any values. It is computed by the department of accounting so that the financial
risk can be determine. The cost of capital is very essential of the investors and analysts.
They use this information to find out the prices of stocks and potential returns from the
acquired shares. To determine the cost of capital three factors are required which are cost of
debts, cost of equity and weighted average cost of capital.
Investment appraisal techniques:
By the help of investment appraisal techniques, the business organisations are able to
invest their money at the right place on the right time as well. It is also known as capital
budgeting techniques. The various invest appraisal techniques are as follows-
 Pay Back period- It is the simplest technique among all of the investment
appraisals. This technique helps in identifying that how much time the specific
project will take to produce the revenue so the initial cost of the project can be cover
easily (Jagun, 2020).
 Accounting Rate of Return- The next investment appraisal technique is ARR. It
helps in determining the profit which expected from the investment. It is also called
as return on investment and return on capital.
 Net Present Value- It is considered as the most popular and most common
technique which is used by the organisation. It shows the difference between the
cash inflows and outflows for the particular project so that the company can

determine whether they have invested the money in the particular project or not. If
the result of result of cash flow is negative, then they did not have invest their money
in that project.
After analysing the both of them it can be observed that both of them helps the company
named as Zebra Investment LTD. Due these techniques the organisation are able to earn
large amount of money and save their money from big losses.
CONCLUSION
From the above report it can be observed that the management accounting helps the business
organisation in improving the operations of the business by the help its various segments.
The importance of ratio analysis, investment appraisal techniques, cost of capital, cost
volume profit have been analysed from which it can determine that all of them have some
positive and negatives but if the organisation wants to achieve them then they have execute
them effectively and efficiently.

REFERENCES
Books and Journals
Pelz, M., 2019. Can management accounting be helpful for young and small companies?
Systematic review of a paradox. International Journal of Management Reviews. 21(2),
pp.256-274.
Sudol, P.E., Ochoa, G.S. and Synovec, R.E., 2021. Investigation of the limit of discovery using
tile-based Fisher ratio analysis with comprehensive two-dimensional gas
chromatography time-of-flight mass spectrometry. Journal of Chromatography.
A, 1644, p.462092.
Chit, M.M., 2019. Financial information credibility, legal environment, and SMEs’ access to
finance. International Journal of the Economics of Business. 26(3), pp.329-354.
Gilligan, T. and et.al., 2019. Testicular cancer, version 2.2020, NCCN clinical practice
guidelines in oncology. Journal of the National Comprehensive Cancer
Network. 17(12), pp.1529-1554.
Pei, Y. and Xiong, H., 2022, June. Enhancing Well Performance and Operator Profit by
Optimizing Well Completion Design-A Delaware Basin Case Study.
In SPE/AAPG/SEG Unconventional Resources Technology Conference. OnePetro.
Morrone, D. and et.al., 2022. Between saying and doing, in the end there is the cost of capital:
Evidence from the energy sector. Business Strategy and the Environment. 31(1),
pp.390-402.
Jagun, Z.T., 2020. Risks in feasibility and viability appraisal process for property development
and the investment market in Nigeria. Journal of Property Investment & Finance. 38(3),
pp.227-243.