Md Ashik Hossen

Financial Decision Making Student Name: Ana Hulborea Student ID: Contents Introduction3 TASK 14 Critical evaluation with examples of the roles of finance and accounting within Alpha manufacturing4 TASK 210 Calculation the ratios required and comment on the company’s performance from a potential investor’s perspective10 Conclusion15 References16 Introduction It goes without saying, financial decision making within an organisation is very overriding and rugged but requisite as it needs to ensure the liquidity of that organisation. Within finance, the accounting comes spontaneously as accounts of the organisations accumulate the financial decision. This project will evaluate critically of the functions and roles of accounting and finance within Alpha manufacturing company. Using the financial statements of Alpha, the ratios and the comments of the ratios will be enlisted and evaluate the performance of the organisation. TASK 1 Critical evaluation with examples of the roles of finance and accounting within Alpha manufacturing Accounting In a word, accounting is a process of recording and keeping the financial accounts. Other word, it is such a measurement, communication of and procession of financial and no-financial information about economic objects within business organisation (Kieso et al., 2019). For examples, sales of the company records, debt recording and purchasing the products all are transaction and when these transactions are recoding to a book and software that will be accounting practice for that organisation. Figure: Roles of accounting Source: (Self-designed) Roles accounting within Alpha Company Limited Accounting frolics the overriding roles in an organisation to ensure the financial performance of that organisation. Here, Alpha Company Ltd practices accounting to manage the financial transactions and daily activities within the organisation. Within Alpha how the accounting frolics the roles in business activities, which is given below: Historical roles of accounting As a steward, accounting has some historical roles and functions which actually applied in daily business activities. The seven functions and roles are practiced in Alpha Company Limited which is given below: Recording the financial transactions: Alpha Company Limited records the financial transactions and separates the non-financial transactions which is called journalising is practiced within the organisation (Huang, 2019). For example, debtor and creditor is separated through this activity which provides the information about income and expense. Classify the transactions: From the journal, the transactions are to be separated individually which is called ledgering. The transactions are recorded to separate opening the individual accounts. Like for cash, purchase, sales and capitals all are individually accounts which are enlisted in ledger. Summarise the accounts: From the ledger the accounts are summarised with a table which is called trail balance (Nielsen, 2017). It helps to close the accounts as an equal balance within debtor and creditor. In this stage, the accounts are enclosed to test faults in ledger and helps to the business to identify actual virtue of accounts. For example, sales, capitals and payable notes are creditor and purchase, expense and receivable notes are debtor in trail balance. Find net results: Alpha Company Ltd finds the net results of the business activities because not only recoding the transaction in books is the main role but also finding the net results is activity of the organisation. For a particular date and period, this company prepares the income statement which helps to identify the net income and determine the performance of the organisation. From ledger or trail balance, this statement is prepared spontaneously (Melnychenko, 2017). The difference between the income and expense can calculate the net results of the organisation which is net income. Exhibit financial affairs: From income statement, the performance of the organisation can be determined but the financial backup and capacity of the organisation cannot be determined which will be ensured through exhibiting financial affairs which is called financial statement. It describes in Alpha Company Limited the assets and liabilities equality. The reflection of the assets and liabilities is shown through this balance sheet. For example, when total asset is £70000 and liability is £70000 that will be effective for an organisation and equal. Analyse the financial data: After preparing financial statement and the balance sheet, it needs to analyse the ratio of the transactions and accounts. To analyse the performance of Alpha the ratio is prepared which ensures the capability of payment, liquidity and asset and income balances (Huang, 2019). For this reason, Alpha Company Limited analyse the financial data through these applications. For example, the liquidity ratio is 1:1 is standard and can execute the business transaction. Even return rate is 15% is standard within the organisation. Communicate financial information: After preparing the statement and data analysis, it executes and communicates with stakeholders and other parties through reaching the information about the company with them. In this way, this can communicate with different parties and ensure the effectiveness of the organisational supports. Managerial roles and functions of accounting Control of financial policy: Before presenting the information to stakeholders the management checks this out to identify the frauds and errors which help them to the management to control the financial policy and implement it. Alpha Company Ltd focuses on this practice to control it effectively. For example, the finance department in Alpha ensures the usages of money and investment of it in perfect folio. Preparation of budget: From the accounting historical functions and roles, it helps to prepare budget which will create the opportunity of financial forecasting. According to budget, Alpha can ensure the manufacturing activities and purchases the materials required to produce the products (Melnychenko, 2017). Next year the budget will be £100000 for Alpha to execute all expenses that is the example of budget. Cost control: Through accounting practice, the costs are controlled effectively when the costs accounting is practiced within Alpha Company Ltd. Variable costs and fixed both can be reduced if an effective management practice can be ensured. The production costs per products will be reduced .5 pound which can increase 1000*.5= £500 in Alpha that adds the return in total earning. Evaluation of employee performance: As the wage and salaries are maintained through accounting department, it can determine the employee performance (Nielsen, 2017). The capacity and capability of the employees can be ensured. Alpha Company Limited focuses on employee performance. Prevention of errors and frauds: Through best practice of accounting within Alpha, the frauds and errors can be identified extensively which will increase the return and constant the performance of the organisation. Financing In general, finance is the study of money and its utilisation. Mostly an individual or government or organisation deals with monetary activities and find the answer of the questions that how to utilise money and earn profits from the projects (Bricker et al., 2017). Organisational funding and investments and handle of profits all are executed through finance for which that is extensively overriding for an organisation. What is the required capital for the next project that will be understood and determined through this department? That is the example of finance in Alpha. Roles of finance within Alpha Company Limited In an organisation, finance frolics effectively with some functions which are interrelated to accounting. These activities and roles are described below: Figure: Functions and roles of finance Source: (Self-made) Estimate capital requirements: The finance department in an organisation firstly takes decision and estimates the capital which is actually required to start and launch the project. Alpha manufacturing company always estimates the capital at the last of the year (Azubike and Azubike, 2019). The required capital amount will be £50000 for next project that is estimated through the organisation. Ascertain capital composition: Estimating the capital requirement cannot solve the problems till it is utilised effectively. Using port folio and short and long term investment can utilise the capitals effectively within Alpha Company. From £50000 capital, Project A will take £20000 and Project B will be £20000 and £10000 will be used for other costs that can ascertain the capital. Make the choice of sources of funds: Different sources are identified through the finance department of an organisation (Raykov, 2017). Alpha ensures their capital from different sources like banks, personal, relative and giant business company with NGO which provide loans and Alpha collects the capital. From banks Alpha will receive £25000 and from NGOs this company will receive £25000 so these two sources will be used to collect money and capital for Alpha. Investment of total funds: After collection of capitals, these needs to be invested which can utilise appropriately of the capitals. Alpha Company invests the funds in different projects with maintaining the portfolio and returnable projects. After collecting the funds the investment will be distributed among 3 projects above discussed. Disposals of surplus: End of the month, the manager of finance in Alpha calculates the profits of the projects which can create the surplus or leakages. It forecasts the return of the organisation and provides the information to owner (Tsofa et al., 2017). Manage of cash flow: the cash flow in Alpha is managed by the finance department of the organisation. From investment, finance and cash transfer transaction the cash is actually flowed which is maintained and managed through the manager of the finance in Alpha. Controls finance: The finance of the organisation is controlled through the department of finance in an organisation like Alpha. Portfolio return is controlled and managed within the organisation by the finance manager. Decisions of acquisitions and mergers: The investment and acquisition as well as mergers are controlled by this department in Alpha because the return is calculated through this manager and provide the information to mergers (Raykov, 2017). TASK 2 Calculation the ratios required and comment on the company’s performance from a potential investor’s perspective Return on capital employed The profitability and efficiencies of the organisation is measured through return on capital employed which used its capital. Here ROCE= Return on capital employed EBIT= Earnings before income tax Capital employed= Total Assets-Current liabilities Now, earnings before tax of Alpha for 2017 is £300 Total assets= £2235 and current liabilities= £322.50 So, the capital employed is £1912.50 And so the ROCE= 300/1912.50= .156 that means 15.6% round figured. For 2018, EBIT= £262.50 Capital employed= £4035-£1110 = £2925 So ROCE for 2018 is 262.50/2925 = .0897 or 8.97% Net Profit Margin Now the net profit of Alpha for 2017 was £300 Revenue was £2400 That means the net profit margin is £300/£2400 = .125 or 12.5% Net profit for 2018 was £262.5 Revenue was £3000 And so the net profit margin is £262.5/£3000 = 0.0875 or 8.75% Current Ratio The current assets of Alpha for 2017 were £757.5 Current liabilities were £322.50 And so Current ratio is £757.5/£322.50 = 2.34 is the current ratio of Alpha in 2017 The current assets for 2018 for Alpha Company were £1035 Current liabilities were £1110 So, the current ratio is £1035/£1110 = 0.93 Average Receivable days/ Debtors collection period The trade debtor for 2017 in Alpha is £450 Revenue (sales) is £2400 And so the debtor days are £450/£2400*365 = 68.43 days The trade debtor for 2018 in Alpha is £650 Revenue (sales) is £3000 And so the debtor days are £600/£3000*365 = 73 days Average Payable days/ Creditors collection period The trade creditor for 2017 is Alpha is £285 Cost of sale is £1725 The trade creditor is £285/£1725*365 = 60.30 days The trade creditor for 2018 is Alpha is £1050 Cost of sale is £2250 The trade creditor is £1050/£2250*365 = 170.33 days Comments on the company’s performance from a potential investor’s perspective The return on capital of an organisation should be higher because it increases the organisational earnings. The more return on capital employed, the more efficiency and profitable of an organisation (Mørch et al., 2017). Here in Alpha Ltd. the ROCE in 2017 was 15.6% which was decreased in 2018 and reached at 8.97% that shows the inefficiency and ineffectiveness of the organisation. It may be happened because of inappropriateness in application of business policy, investment inappropriateness and employee mope. If the application of business policies and investment in appropriate position it may increase the return and remain in constant or increment position for Alpha Limited. The profitability and percentage of profits from the revenue is calculated through this profit margin ratio. Actually the profits margin line should be high which indicates the business profitability in an organisation (Langemeier and Yeager, 2018). Here the profit margin for 2017 in Alpha Limited was 12.5% which was decreased and reached at 8.75% which indicates that the organisational profitability is not constant and consistent which is fluctuated. It may occur because of responses from customers in purchases, may be the marketing activities are not reached to the customers and cut in the market. To overcome this problem, Alpha Limited can influence in marketing and promotion to increase the sales of the products within the organisation. The current ratio indicates the liquidity of the organisation which forecast liquidity capacity within an organisation. The standard liquidity or current ratio is 2.00 which may create a strong back and cannot have to face liquidity crisis. Sometime it accepts 1.5 that varies from organisation to organisation (Deshpande and Luo, 2018). Here In Alpha Limited the liquidity or current ration for 2017 was 2.34 which cross the standard in high that makes the organisation as high liquidity backup. But in 2018 this amount was reached at 0.93 that ensures the bad liquidity and in future the organisation must face liquidity crisis. The liquidity crisis creates from expenses are high with cash that decreases cash in hand. It can be overcome applying purchasing the products in payable notes or the taking loans from banks and others parties. This ratio indicates to the organisational cash turnover from credit sales and how much time that can be taken that is represented through this formulation. If the organisation takes little time or less time to collects the cash from credit sales it indicates the efficiency and capability of the organisation (Govind and Jain, 2018). On the other hand, if the organisation takes much time to convert sales to cash, it can present disabilities of the organisation and will face the liquidity crisis. In Alpha for 2017 the turnover was 68 days which may be standard but within 2018 it increases 5 more days to convert money from sales. It may occur from not to collect the money from creditors on time. This problem can be solved if the organisation always tries to sell their products in cash and without the verifying the customers the receivable sales are provided. The creditor payable ratio indicates how much time the organisation takes to pay the total amount of debt which was applied in purchasing the products and materials from suppliers. If the time of payment takes less, it indicates the effective position and ensures the effectiveness and liquidity with high assets. In the mean time, the more time taking, the more inefficiencies and ineffectiveness (Bunker et al., 2019). In this case, above the scenario describes the ineffectiveness because in 2017 the days for turnover were 60.30 which indicate strong liquidity. Then 2018 was the bad period for Alpha Limited because it increases the days which were reached at 170 days almost that decreases liquidity and effectiveness. For more sure, this happens because of high rate of sales in credits bad debt of the organisation. The suppliers are not comfortable for the organisation that creates the problems with the organisation about loans and creditors. If the organisation wants to overcome the problems it should forecast cash sales with cash purchases from the creditors. Conclusion As a manufacturing company Alpha Limited must have to execute the accounting and finance and the roles of these two activities within the organisation. In recording the transaction and overlapping the financial activities these two are very overriding for Alpha. In this report, the income statement and financial statement has been executed with different ratio which influence to the organisation directly. Accountants and finance managers need to execute these ratios because of taking effective decision. References Azubike, J.U. and Azubike, N.C., (2019). 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