Financial Decision Making: Performance Analysis of Panini Ltd (UK)

This report provides a financial analysis of Panini Ltd, a medium-sized enterprise manufacturing bread in the UK supermarket sector since 2016. It critically evaluates the accounting and financial functions, detailing their roles and duties within the business organization. The report also describes various sources of finance used for business expansion, including debt and equity capital, and analyzes their implications. A key aspect is the computation and interpretation of financial ratios, such as gross profit margin, operating profit margin, return on capital employed, current ratio, quick ratio, inventory turnover days, receivable collection period, and payable payment period for the years 2018 and 2019. Based on these ratios, the report comments on Panini Ltd's performance, highlighting areas of improvement and potential risks, offering insights into the company's financial health and strategic decision-making. Desklib provides access to this and other solved assignments.

Financial Decision
Making

Contents
INTRODUCTION...........................................................................................................................4
TASK 1............................................................................................................................................4
1.1 Critically evaluate the Accounting and financial functions with the roles and duties within
the business organisation.............................................................................................................4
1.2 Describe the various sources of finance which are used for expansion purpose to the
business organisation...................................................................................................................5
TASK 2............................................................................................................................................7
a) Compute the monetary ratios and comment of the performance of the company...................7
b) Comment on the performance of the company Panini Ltd.....................................................8
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
The financial decision making helps the company is finding out its monetary and
profitability position. The decisions will be made through the analysis of the function of
accounting and finance that the company adapts and how much efficient it has been working
(Araújo and Dornelas, 2018). In the following report, company taken is Panini Ltd., which is a
medium sized enterprise and has established its operations in the year 2016. It deals in the
supermarkets by manufacturing the bread in UK market. In the report, the role of Accounting
and finance will be explained by considering the duties and responsibilities of the business entity
in respect to this. Also, the various sources are finance will be described. Although, the financial
statement of the company will be critically evaluated with the help of the financial ratios and
certain recommendation and interpretations will be given according to it.
TASK 1
1.1 Critically evaluate the Accounting and financial functions with the roles and duties within the
business organisation.
Accounting and finance play a very crucial role in the working of any organisation. Its
simple, an organisation works on money and if you don't handle and manage your money, you
can't manage your organisation but if you can keep the account of money, organisation can be
managed effectively.
 Legal: When you abide by the accounting principles, legal issues can be restricted but if
your financials show any kind of discrepancy, it can violate a number of laws.
Performing financials in a lethargic manner can make you miss minor or major problems
with the firm, thereby risking the company. Moreover, if you get into any legal trouble
poor financials can make it worse (Barco and et.al., 2020).
 Generating budgets and financials: By having knowledge of flow of money, one can
prepare a budget to meet future requirements. Budgeting refers to an estimate of revenue
and expenditures that an enterprise or individual might need over a specific period of
time. It can be used to enhance and stabilize the management.
 Financial performance: It is difficult for a company to grow if you don't analyse the
past performance. By having a look at the financials, one can have an idea where the

money was spent and was it worth spending that amount so that in future same mistakes
do not occur. By analysing the records, you can make an educated decision on what
operations to downsize and what operations to grow, it can provide details about new
areas where a negligible expense can become a source of revenue (Breen, Karlson and
Holm, 2018).
 Formatting business strategies: The ultimate goal of every company is to earn profits
and this can be done if you can forecast the environment and understanding the
economies of the market. If a product is not working well, modify the product or find
solutions to the problems it is facing. If a lot of expenditure goes on hired advertising
firm, make a decision to have an in house. Good strategy can take you to greater heights
but a good strategy requires information.
Duties in Accounting:
 Observe and prepare and create: Accounting can be understood as a tool and strategy that
helps to schedule and improve spending plans to control financial planning. It would
likewise bring benefits and advantages in finding and finding areas that provide cash
without legal direction and can lead to splurge.
 Support: Investigating what funds and asset measurements it is hoped will be put into
relevant actions will help monitor cash inflows and outflows, which will be monitored
and followed up by the association on a long-term basis.
 Anticipate finance-related activities and assess risks: This is an essential capability and
need for bookkeeping-related components that will help investigate and assess possible
hazards and seize opportunities to impact business development and in a brutal climate
and unrest The same goes for extending its development.
1.2 Describe the various sources of finance which are used for expansion purpose to the business
organisation.
For a business entity, the expansion and growth of the business is a crucial decision. As it
depends largely on what finances matches with the need and requirements of the company as it
largely depends on whether the need of financing is short term or long term. There are Various
types of finances which are available for use when aiming for business expansion in an efficient
and cost effective manner and also for the company growth. The main focus in this situation is to

solve the problem of financing and to achieve the most effective source of finance which helps
the company in finding that financing solution which helps it to match with the company's cash
flow and also adapts to the money requirements of the company for its expansion needs (Bustos
and Pomares-Quimbaya, 2020).
The important sources available for financial funding are:
1. Debt capital – borrowing money which has to be paid back in the future including both
the principal and the interest is termed as debt financing. Businesses obtain the debt
financing privately with the help of bank loans. One more way is to source new funds
with issuing debts to public. Debt issues include debentures, mortgages, corporate bonds,
leases and some more. The companies that make the debt issues are known as borrowers
as they exchange the securities with cash to help them with their needs of expansion or
growth. This makes them accountable to repay the amount of debt that includes both
principal and interest. Debt financing is a source of finance which works in a time bound
scenario as it needs the borrower to repay the amount along with the interest within the
agreed period. The major benefit of financing the expansions with the help of debt is that
the company does not loses its control over the ownership of the company. But debt
financing does come with a drawback being that the borrower needs to repay the
principal as well as the interest amounts hence making it count as the extra charges for
the total amount and also growing the concern over if the company fails in making the
repayments it may lead to company bankruptcy and defaults resulting in company image.
It is an expensive method of raising funds for the expansion as the entity gets involved in
the whole process with an investment banker and hence this financing is only viable
when the interest cost is less and the retains from it are better.
2. Equity capital: Financing through equity capital is of the form where the company invites
public to take some proportionate ownership of the business in exchange of raising funds
from them. The investors who invest in the company then become the shareholders of the
entity after purchasing its shares and claiming their part of ownership. Financing through
this approach leads to dilution of the ownership of the company with some proportionate
amount. Unlike debt funding, expansion financing through equity does not requires the
company to make interest payments hence does not load the company with extra burden.

The major disadvantage of this is sharing the profits of the bushiness with all the
shareholders of the company in the long run.
TASK 2
a) Compute the monetary ratios and comment of the performance of the company.
 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/ 8755= 31.58%
2019: 2305/ 10211* 100 = 22.57%
 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: Cost of goods sold / average inventory
2018: 6500 / 350 = 13.57 times
2019: 8235 / 512 = 16.08 times
 Receivable collection period: 365 / Sales on credit / accounts receivable
2018: 365 / 10000 / 760 = 27.74 days
2019: 365 / 11500 / 1340 = 42.54 days
 Payable payment period: 365/ cost of sales / Trade payable
2018: 365 / 6500 / 920 = 51.6 days
2019: 365 / 8235 / 707.5 = 31.36 days

b) Comment on the performance of the company Panini Ltd.
 Gross Profit Margin: From the above computed gross profit margin, it can be ascertained
that the margin has diminished in the year 2019 by approximately 7%. It has happened
because the cost of goods sold in the company has increased even after the surge in the
net revenue of Panini Ltd. The reason behind decrement in the margin could also be that
the selling price of the products and services has decreased which in turn diminished the
gross profit of the company.
 Operating Profit Margin: The operating income of the business entity has decreased
with the increase in the revenue turnover. In 2018, the margin computed is 27.65 % and
in 2019 it is 20.04 %. It means that the operating costs and the non – operating expenses
are enlarged of the business entity. So, for settling this margin and increasing it, the
unnecessary expenditures of the business organisation should be diminished (Finn and
et.al., 2018).
 Current Ratio: The optimal C.R. for any organization should be 2:1. In this case, 2018 is
1.21:1 and 2019 is 4.12:1. This indicates that, earlier in 2019, Panini Ltd. did not have a
sufficient amount of assets to meet its ongoing obligations and commitments, but in 2019
it had a sufficient amount of temporary resources to meet its ongoing obligations.
Explanations for these changes could be: The drop in 2018 could be the result of
inventory or inventory errors. Furthermore, the organization has no legitimate principle to
receive cash from its account holders. Its expansion in 2019 could be because the
organization has cut the aforementioned costs and sold off pointless resources, or because
Panini Ltd has expanded its ability to generate capital to meet temporary advances.
 Quick Ratio: The best Q.R. should be 1:1. It was below 1 in 2018 and 2.80:1 in 2019.
This means that the organization isn't great at liquidity, where in 2019 the commercial
company was great. The percentage of turnover decreased in 2018 because, in some
cases, organizations may need to establish their temporary commitments to solve their
problems. Or on the other hand, the organization needs more earning potential. The
increase in transaction volume may be due to limited technology, promotion, etc. It
represents Panini Ltd. with additional existing resources to carry out its ongoing duties
without selling shares.

 Return on Capital employed: A problem related to the decline in the return on capital
employed may be that the business has expanded its obligations and liabilities over a
given period of time (Nguyen and Van Nguyen, 2018). The advice to adapt to this
situation is that associations will pay attention to those parts that impair the viability and
productivity of the organization. If Panini Limited reduces its commitment, it will help
expand the interests of the business. Waste of capital resources: This situation indicates
that the organization is using its capital assets. Businesses should be properly designed to
take full advantage of these assets and achieve the most ideal from the accessible options.
 Inventory turnover Ratio: The climb can be noticed these days, and the idea is that the
organization can sell more stock. There may be two reasons for this. One is that
companies can become bigger and stronger in advantageous areas and handle inventory
proficiently. Another possibility is that there is no inventory to help with such a costly
transaction. For the follow-up explanation, Panini Ltd. should support the old stock
transaction and sell its shares using savvy valuation methods.
 Receivables collection period: There was a development in the classification period
which indicated that Panini Ltd. was unable to collect cash from its account holders on
time (Sedevich-Fons, 2019). To reduce the number of days’ businesses should offer their
customers in terms of instalment payments and pass on the normal time frame to them.
Or, on the other hand, it could take drastic action on the classification of such notes.
 Payable Payment Period: There is a drop, which means that the organization can repay
its obligations on time compared to before. This could be valuable to associations, as a
more limited instalments time frame would help organisations make better choices based
on banks, financial backers and suppliers. This way, companies can apply for advances
and assets without any problems.
CONCLUSION
From the above report, it can be concluded that accounting function are applicable in all the
organisations which are linked with the business activities of the organisation. Also, the duties
and functions of accounting and finance are elaborated in the report. Further, the monetary ratios
are computed with the comments on the performance of the company.

REFERENCES
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other nonlinear probability models. Annual Review of Sociology, 44, pp.39-54.
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Nguyen, A.T.H. and Van Nguyen, T., 2018. Working capital management and corporate
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Sedevich-Fons, L., 2019. Accounting and quality management: the accounts payable function
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