BSBMGT803: Report on Financial and Economic Information Analysis

This report, prepared for the BSBMGT803 unit, delves into the critical role of financial and economic information in strategic decision-making. It explores corporate strategy, budgeting, and the importance of aligning financial resources with organizational goals. The report covers topics such as financial contingency planning, activity ratios, and cost-benefit analysis, providing insights into their application in business contexts. Key performance indicators (KPIs) like average spend per sale and current ratios are discussed, along with the alignment of budgets to achieve strategic goals and the significance of various income sources. Furthermore, the report examines micro and macro environmental factors, profitability metrics, liquidity ratios, and the potential for inaccurate financial reporting through manipulation. The document also includes an analysis of the balance sheet and other financial statements, offering a comprehensive overview of financial analysis for strategic planning.

Running head: Assessment Task 1 BSBMGT803Use financial and economic information for
strategic decision making
Financial and economic information for strategic decision making
Name of Student
Name of the University
Author Note

1Financial and economic information for strategic decision making
Table of Contents
Answer to Question 1.................................................................................................................3
Answer to Question 2.................................................................................................................3
Answer to Question 3.................................................................................................................4
Answer to Question 4.................................................................................................................4
Answer to question 5..................................................................................................................4
Answer to question 6..................................................................................................................5
Answer to question 7..................................................................................................................5
Answer to question 8..................................................................................................................5
Answer to question 9..................................................................................................................5
Answer to question 10................................................................................................................6
Answer to question 11................................................................................................................7
Answer to question 12................................................................................................................7
Answer to question 13................................................................................................................8
Answer to question 14................................................................................................................8
Answer to question 15................................................................................................................9
Answer to question 16:...............................................................................................................9
Answer to question 17:.............................................................................................................10
Answer to question 18:.............................................................................................................10
Answer to question 19:.............................................................................................................10
Answer to question 20:.............................................................................................................11

2Financial and economic information for strategic decision making
Answer to question 21:.............................................................................................................12
Answer to question 22:.............................................................................................................12
Answer to question 23:.............................................................................................................13
Answer to question 24:.............................................................................................................14
Answer to question 25:.............................................................................................................14
References:...............................................................................................................................15

3Financial and economic information for strategic decision making
Answer to Question 1
For any businesses to be successful, it needs to have correct corporate strategy and
corporate budget. Corporate strategy is the growth design of the firm; it is formulated by the
top management of the organization. The purpose of the corporate strategy is to turn the
organizational goals and objective into realities. For this purpose, budget allocation play an
important role in achieving the goals of the corporate strategy.
A budget explains the allocation of organizational resources like physical, human
resources into achieving the various organizational goals. Corporate strategy and budget both
together describe the organization concept of business. Therefore, right budget allocation is
very important for attaining company strategy. Company should plan their budget keeping in
mind about their corporate objective. If a right balance is maintained between both the
company budget and corporate strategy, then company will able to flourish its business
operation in a short span of time.
Answer to Question 2
Financial contingency plan refers to the specific course of action taken by the
company at the time of financial crisis. The plan includes allocation of the finances and other
resources in order to tackle the crisis situation (Hoyle, Schaefer and Doupnik 2015). The
contingency plan aims to resolve the situation in a proactive manner rather than reactive, the
plan should be based on the following factor like Estimation of potential risk, Prioritization of
Scarce resources, delegation of accountability to the trusted employee in the case of crisis,
determining the substitute for the source of fund, protection of the company business data,
carefully monitoring the process and updating them on the required time.

4Financial and economic information for strategic decision making
Answer to Question 3
Activity ratio indicates how efficiently and effectively the company is utilizing its
assets to convert them into revenue. In other words, these ratios compare the increase in the
sales with the respective class of assets. Some of the most commonly used activity ratios
include the following working capital turnover ratio, current assets turnover ratio, fixed assets
turnover ratio. These ratios are important for the financial analyst or the other stakeholder of
the company in determining the financial health of the company for making any investment
decision. These ratios are the metrics of the efficiency and profitability. Activity ratios are
also used to compare the competitor business with company with respect to the operational
excellence.
Answer to Question 4
Cost benefit analysis is an important tool in taking any business decision. As per the
concept the cost benefit analysis helps the business in analysing the strength and weakness of
a business proposal. The results are derived by adding the total benefit which can be extracted
from a business and then subtracting all the associated cost in pursuing that business. If the
total benefit outweighs the total cost, then the project is accepted by the company (Warren
and Jones 2018). Cost benefit analysis help the company in solving the complex business
problem easily. In other words, they simplify decision making of the complex business
problem. Another benefit of the cost benefit analysis is that method is that it provides
scientific and more trust worthy decision in evaluating the business proposal.
Answer to question 5
Answer is option (b) – Favourable quantity variance

5Financial and economic information for strategic decision making
Answer to question 6
Answer is option (C)- Unfavourable price variance
Answer to question 7
Answer is option (a)- An unfavourable revenue variance
Answer to question 8
Answer to question 9
The three most important Key performance indicator for a business include:
1. Average spend per sale
It is important for any business to know how much costing it has to incur in making a
sale. This key performance indicator helps the business in evaluating its sales profit
margin. It also helps the business to make strategy in reducing its conversion cost.

6Financial and economic information for strategic decision making
Reviewing this metrics help the business in identifying the customer purchasing
behaviour.
2. Current ratio
For any business current ratio is the primary indicator for the business financial
health. This metrics indicates the business ability to pay all its short term obligation.
Monitoring this cash flow is very important for the reviewing the liquidity position of
the business.
3. Business growth
This is an important indicator for the business financial health. There is no such
specific indicator for business growth. Following ratios are most commonly used to
determine growth of any business like assets turnover ratios, solvency ratios,
efficiency ratios, profitability& margin ratio.
Answer to question 10
For the smooth functioning of any business it is important for the business to achieve
its strategic goal with in the allocated budget. This can be achieving only when the business
organization set targeted budget for a defined business goal. Business need to manage their
financial resources in order to tackle the unforeseen challenges.
Some of the few ways to align the budget are as follow:
Measurement of key performance indicator.
There is many key Accounting software which are useful in the tracking the
performance of the organization. Such measurement includes tracking the transaction,
reviewing the internal control, assessing operational efficiency. It also helps in the identifying

7Financial and economic information for strategic decision making
whether the budget has been properly allocated to the achievement of the organizational
goals.
Setting of realistic Goal
Organization should try to set their goal which is achievable and within the allocated
budget (Nobes 2014). The organization should try to make projection taking all the factor
into consideration which will affects the business environment.
Create long term organizational vision
Having a clear cut organizational vision is important for the business to grow and
succeed, the organization vision is interlinked with the budget as it helps the organization
corporate strategy to achieve the operational excellence.
Answer to question 11
A business organization main source of income depends upon the sales. However, there
are certain other sources of income apart from the sale. Those income includes
 Earning from the interest
 Rent revenue
 Dividend income
 Revenue generated from the supply of service
 Brokerage earning
 Sale of the fixed assets
Answer to question 12
A business contingency plan is a specific set of course of action which an organization
plan to take against any specific situation or contingency which may or may not happen. A

8Financial and economic information for strategic decision making
business plan is also known as plan B as it is considered as alternative course of action which
an organization take if the expected result is not achieved. A contingency plan includes the
following
 Developing the contingency planning policy statement.
 Conducting the business impact examination.
 Determining the preventive control.
 Formation of contingency strategy.
 Development of information system contingency plan.
 Confirming plan maintenance.
Answer to question 13
Micro economics is the part of economics which studies the behaviour of the
individual or the firm in with regards to the utilization and distribution of scarce resources.
The purpose of the micro economics is to evaluate the market mechanism that determine the
relative price of the goods and services. This branch of economics study the implication of
the human activity like buyer, seller and the business owner on the prices of the product and
services. Microeconomics is a normative science which helps in determining the market
position if certain condition changes. The study of micro economics deals with the concept of
demand, supply and equilibrium, production theory and labour economics.
Answer to question 14
Productive theory is the study of converting the inputs into output. Micro economics
helps the business in the evaluation of the productive theory. Productive theory states that the
product of an organization is the results of the combination of more than two micro economic
factor of production like raw material, labour and other overhead expenses. Changes in the

9Financial and economic information for strategic decision making
above economic factor affect the production cost of the manufactured goods, which
ultimately affect the price. Therefore, the study of various micro economics factor is
important for the business organization to achieve its operational excellence.
Answer to question 15
The two macro environment factors are as follows
Technological factor
For a business to survive, it continuously need to update its technological in the
production process. In todays, fast technology disruptive world the organization in order to
compete against their competitor have to manufacture quality product at a mass scale.
Therefore, the company have to redesign its manufacturing process using technology.
Economic factor
Business performance and the economy of the country are interlinked. A business
receives all its input of production from the economy like raw material, labour, and other
overhead expenses. Changes in the price of these input indirectly affects the prices of the
goods in the economy.
Answer to question 16:
Profitability is regarded as the important financial metrics that are used by the analyst
and investors for measuring the ability of the company to produce income. To review the
profitability of the company it is necessary to include the margin ratios that would include the
reviewing the gross profit, EBITDA, operating profit, net profit and cash flow. Beside the
margin ratios the profitability ratio also includes the return ratios to assess the return on
assets, return on capital invested and return on equity.

10Financial and economic information for strategic decision making
Answer to question 17:
Beside measuring the profits there are other financial ratios such as the liquidity ratios
that helps in indicating an organization’s current assets to meet the obligation of the company
as and when they become due (Narayanaswamy 2017). The liquidity ratios mainly include
the current ratios and quick ratios. These ratios help in indicating the overall liquidity
performance of the business in respect of the company’s working capital acting as the
indicator of liquidity.
Answer to question 18:
A business can receive inaccurate financial reports through financial manipulation.
This generally happens by over computing the profits or under computing the expenditure. If
the accountant and the bookkeepers makes the mistakes and over computes the profits, then
this might provide the decision makers with the false impression that they have plenty of
profit. Similarly, if the business receives an under computed spending then this may ruin the
financial position of the business. Furthermore, an incorrect inventory reports may be also
received by the business that may provide an error in the computation of costs of goods
which ultimately impacts the net income for the two period.
Answer to question 19:
The balance sheet:
The balance sheet is regarded as the financial statements that are used by the owners
of business and accountants to present the financial position of the business at the end of the
accounting year at the particular date (Henderson et al. 2015). The balance sheet is regarded
as the statement that contains the assets, liabilities and capital of the business at a particular

11Financial and economic information for strategic decision making
period of time. The balance sheet helps in providing the detail of the expenditure and income
of the preceding period.
Cash flow statement:
The cash flow statement is regarded as the financial statement that helps in
summarizing the sum of cash and cash equivalents which inflows and outflows an
organization. The cash flow statement is helpful in determining how well an organization is
administering the cash position to pay its obligation of debts and operating expenditure.
Income Statement:
The income statement helps in showing the profit and loss over the period of time.
The profit and loss is ascertained by considering the revenues and deducting the expenditure
that are incurred from the operating and non-operating activities. The income statement helps
in showing the gross profit, selling and administrative expenses, taxes paid and net profit in
the organized way.
Answer to question 20:
Management accounting is regarded as the most essential unit of a company. It is the
management accountant that create the internal analysis so that they can guide the business
strategy. The management accounting is important in decision making are as follows;
a. Relevant analysis of cost: One of the most important work of management
accountant is to perform an appropriate analysis of cost so that they can ascertain the
current expenditure and provide suggestion for future activities (Macve 2015). Once

12Financial and economic information for strategic decision making
the team of management accountant has completed their relevant cost analysis, it
helps in framing a better and evidenced based decisions.
b. Make or Buy evaluations: Production of a products is usually an expensive portion
of a business therefore it becomes important for business to determine which options
suits the best to the company. Usually there are two solutions either make your own
product or purchase from the third party. In such situation management accounting
helps in assessing the real costs for each options and helps in taking decisions that are
more sensitive and possess the fuel to make or break the business.
c. Defining budgets: Management accounting plays a vital role in assessing the
previous business activities and defining the future investment decisions.
Management accounting helps in creating plans for marketing of new product or any
undertaking the budgeting decisions.
Answer to question 21:
Financial scenario modelling can be defined as the procedure of assessing as well as
examining the probable events which might happen in the near future by taking into account
the numerous feasible outcomes. The financial scenario modelling is useful in representing
the numbers in respect of all the activities of the company’s operations (Maynard 2017). Such
kind of models are useful in the process of decision making. The executives of company may
use the financial scenario modelling as the tool to project costs and estimate the profits for a
proposed new product. The financial scenario modelling helpful in capital budgeting
procedure.
Answer to question 22:
The output of a financial models is useful in the process of decision making and
conducting financial analysis whether in or out of an organization. Within the company the

13Financial and economic information for strategic decision making
executives can use the financial models to frame the decisions regarding the raising of
capital, expanding the business organically, making business acquisitions, selling or divesting
in the assets or business units, forecasting and budgeting and capital allocation.
Answer to question 23:
Financial modelling is regarded as the iterative procedure. Below listed are the
breakdown of steps for building a financial model;
a. Historical outcomes and assumptions: Under this step one can fill up the
assumptions relating to the forecast period and hard codes.
b. Commencing with income statement: Following the forecast assumption the next
step involves computing the revenues of income statement, COGS, gross and
operating profit expenditure to EBITDA.
c. Commencing with balance sheet: This involves computing the accounts receivables
and inventory where both the revenues and COGS together with Accounts receivables
and inventory days’ assumptions can be made (Barth 2015).
d. Creating the supporting schedules: This involves the creation of debt schedule from
the historical period and involves adding the rise in debt and subtracting the
repayments.
e. Finishing the income statement and balance sheet: The information from the
supporting schedules can be obtained to complete the income statement and balance
sheet.
f. Building cash flow: Following the completion of income statement and balance sheet
one can build the statement of cash flow based on the reconciliation method.
g. Conducting DCF analysis: Following the completion of the three statement it now
involves computing the free cash flow and performing the business valuations.

14Financial and economic information for strategic decision making
h. Adding sensitivity analysis and scenario analysis: Following the completion of
DCF and valuation section it is the time for incorporating the sensitivity and scenario
analysis in the model.
i. Creating charts and graphs: Creation of charts and graphs is the most effective step
to cover the detail of results.
j. Stress test and auditing the model: When the model is done the final step is to test
the stress and understand the behaviour of model by implementing auditing tools to
assure its accuracy.
Answer to question 24:
The set of guidance notes that are necessary for performing a cost benefit analysis is
given below;
a. Establishing the framework in order to outline the necessary parameters relating to the
analysis
b. Recognizing the costs as well as benefits in order to categorize same by type and
intent.
c. Computing the costs and benefit all through the assumed life of the project or
initiative
d. Comparing the costs and benefit that are useful in framing aggregate information
e. Assessing the results for making an informed and final recommendations.
Answer to question 25:
To determine whether the financial advisers have the licence of providing the type of
advice an individual want is to look for the financial advisers that are having the certified
financial planner (CFP) as they have the licence and regulations on the different aspects of

15Financial and economic information for strategic decision making
the financial planning. Another way to determine that the financial advisers have the licence
of providing the type of advice is to read the code of ethics that helps in ascertaining whether
the financial advisers is adhering or not.

16Financial and economic information for strategic decision making
References:
Barth, M.E., 2015. Financial accounting research, practice, and financial
accountability. Abacus, 51(4), pp.499-510.
Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial
accounting. Pearson Higher Education AU.
Hoyle, J.B., Schaefer, T. and Doupnik, T., 2015. Advanced accounting. McGraw Hill.
Macve, R., 2015. A Conceptual Framework for Financial Accounting and Reporting: Vision,
Tool, Or Threat?. Routledge.
Maynard, J., 2017. Financial accounting, reporting, and analysis. Oxford University Press.
Narayanaswamy, R., 2017. Financial accounting: a managerial perspective. PHI Learning
Pvt. Ltd..
Nobes, C., 2014. International classification of financial reporting. Routledge.
Warren, C. and Jones, J., 2018. Corporate financial accounting. Cengage Learning.

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