Importance of Accounting and Financial Functions in an Organization
Get free samples written by our Top-Notch subject experts for taking the Uk Assignment Help from native Assignment Help.
Introduction - Understanding Organizational Accounting Through Financial Reports and Scholarly Literature
Accounting and financial activity in an organization described the monetary condition of this company. Using financial activity in organisation management, become knowledgeable about past business activity and decide planning’s for further business operation. The Panini ltd planning for business operation would be more compact by this accounting evaluation. Using the financial report of FY 2018 and 2019 would reveal performance of this organisation.
Question 1.1
Importance of financial and accounting functions in an organization
Analysis sales revenue
Using financial analysis of an organisation, management of this company becomes aware about growth or deficit in sales volume in recent financial years compared to previous year. Through using accounting practice in company management would decide about different facts regarding sales volume. Using such accounting practice management of any organization expects such growth rate in future (Haje et al. 2019). Accounting and financial function in the Panini ltd would explore financial growth or deficit in FY 2018 and 2019. Arranging of different facts about business operation of Panini ltd, reveal about performance of this organization through sales revenue growth or deficit. Using accounting activity in Panini ltd has disclosed about revenue of this organization in those years that explore growth of the revenue of in recent years compared to previous year. Furthermore, using sales analysis, the total cash inflow of an organization has been evaluated by the accounting team.
As a part of the accounting team member of Panini ltd has revealed about the growth of this organization in FY 2019. According to sales this organization has revealed about growth of £ 1500 in FY 2019. Through, the use of accounting practice in organization, growth analysis has become easier to understand about increasing demand for bread. Using this analysis management could make decisions regarding more expansion of production facilities. Using accounting and financial activity in an organization helps to practice decision making activity. Another point of using this accounting process in organisation magnet could decide about future goals of an organization. For example, the growth of sales of Panini ltd is around 10% in FY 2019, through this financial analysis management of Panini ltd would set a target of more than 10% sales volume in FY 2020 compared to FY 21019.
Use to track profitability and expenditures of organizations
Using accounting practice in organization helps to make such calculations regarding profitability. Through profitability evolution of an organization management gets knowledge about financial stability in an organisation. In a company production to selling of products or services has gone through different stages where accounting practice helps to maintain each detail of operations (Monteiro and Cepêda, 2021). Deficit of gross profit (£ 235) impact on net profit of Panini ltd in FY 2019 that indicates about financial loss. Using accounting practice of gross profit to net profit calculation helps to understand the impact of profitability on business. Through accounting practice regarding gross profit has revealed that opening raw mercurial has been used for production and further purchase of raw material amount, at least closing balance of inventory helps to evaluate the actual sales of the organization. Through this ways, Panini ltd also exploring about gross profit has been made this company.
Using gross profit data of Panini ltd has shown a deficit in the FY 2019 that helps to deliver a report to management about problems in business operations. Although using such accounting practice management would evaluate the problem in gross profit and mitigate those issues for further growth in profitability. Hence, operating profit of Panini ltd also being decreased in FY 2019 due to higher operating expenses. Using the accounting practice in the organization those issues are being identified by management to prevent the company from those unwanted losses. Additionally, “profit after tax” (PAT) has been decreased due to higher tax related responses. Using accounting practice, Panini ltd would adopt such activity to reduce such expenses to ensure higher profit in next financial year.
Duties and roles of accounting and financing in organization
In the accounting practice for an organisation register each financial activity is not only activity played by operating activity. There are such additional roles played by accountants for future growth of an organization. Through, presenting those activities below regarding roles and duties of accounting functions in an organization.
Using for creating budget and planning for next financial year
With the help of accounting practice, whole financial year activity has been registered through proper manners. Using that information management, which becomes efficient to plan, next year’s budget for business operations to help of budget planning management prevent organization from the unnecessary expenses to ensure sufficient profitability. In such activity of budget planning created by basic information of business operations where financial reports are used as a resource (?imsek and Ozturk, 2021). Through accounting activity in organizations those resources could be evaluated for budget planning. The budget planning required sufficient information regarding past financial activity to present a potential budget for next year. In this process the accounting team plays an efficient and effective role to project the future financial aspect of an organization.
Quantitative financial analysis practice
Quantitative information about financial elements help to evaluate liabilities and assets of an organization. Through preparing the “balance sheet” of an organization management justify risk and financial strength to investors. As per accounting practice in organization, accounting teams play a role to evaluate such reports for management and investors to present the current condition of an organization. Considering the duty of accounting practice, in organization helps to make financial reports considering ethical practice in organization. Using accounting activity in organization duty of accounting personals to register each financial activity with proper manners. Furthermore, financial reports are being made by accountants to represent such financial conditions of an organization at current days. Furthermore, analysis of financial reports is also a part of accounting practice in organisation, which is being used for evaluation of different points regarding deficits or losses (Karagiorgos et al. 2020). Through accounting practice an organization’s liabilities in short and long term have been delivered about financial burden along with assets. Using accounting practice management becomes aware about such changes in liabilities and assets that could harm the financial condition of an organization. There are accounting experts who would deliver some suggestions or strategies to overcome those crises that are one of the important roles of accounting practice.
Estimate risks in financial activity
Estimate risk regarding new investment or explanation plan help management to take such precaution for future risks. According to the financing activity of an organisation helps to evaluate the potential benefits from investment. In such accounting and financing activity management becomes able to choose higher return oriented projects for business growth. Further importance of financial activity is to continuous monitoring of financial activity of an organization to ensure the higher profitability at the end of the financial year. Although using this practice in financial activity would deliver higher profitability to management.
Question 1.2
Various sources of finance consist of different activities where management would choose a better option for making profit . Using different financial resources, small and medium companies would get options for expanding business at large scale. Some financial resources are being discussed for small and medium scale enterprises.
Banking or financial institution loans:
According to banking organization activity, some of financial organisation use banks for financial resource. In this aspect small and medium scale organizations also use those financial resources for exploring business in a wider manner (Mazelis et al. 2021). In fact, using banking loans for expansion, organizations would be able to repay loans over a long period of time (Scarpellini et al. 2018). In such activity, management of an organization would need to pay such interest to nanking organizations. Those real interests would be applicable as interest expense in financial reports. Using banking loans as a resource, organization would adopt additional financial burden for a certain time.
Listing organisation in stock market:
Using banking organization or other loans options, organization would need to pay interest for such loans. In this condition organizations face such issues of continuous interest expenses. In this condition, management could list the organization in the stock exchange to arrange resources for further business activity. According to the listing, this organization in stock exchange management would sell the stake of the organization to investors to arrange financial resources (Salehi et al. 2018). In fact, the importance of listing a company in the stock market where management does not need to pay such interest expenses to stakeholders. Following this financial resource organisation would need to pay a dividend to investors when the organization would make profit after paying all expenses (Morozko and Didenko, 2018). Using this resource, the financial burden to the organization would be reduced and management would be flexible to arranging expansion business plans. Furthermore, considering the financial resources for small and medium scale enterprises, listing the organization in the stock exchange would be more useful for management to gain financial advantage.
Task 2
a. Evaluation of the financial ratios for the last two years
i. Gross margin
Panini Ltd
£’000
£’000
i
Profitability Ratio
2018
2019
Gross profit/(Loss)
3,500.00
3,265.00
Revenue
10,000.00
11,500.00
Gross profit margin (%)
35.00%
28.39%
Table 1: Gross margin
(Source: Created by learner)
ii. Operating margin
ii
Profitability Ratios
2018
2019
Operating Profit/(Loss)
2,765.00
2,305.00
Revenue
10,000.00
11,500.00
Net margin (%)
27.65%
20.04%
Table 2: Operating margin
(Source: Created by learner)
iii. Return on capital employed
iii
Profitability Ratios
2018
2019
Earnings before interest and tax (Profit for the period)
2,025.00
1,256.00
Shareholders’ equity
6,755.00
8,111.00
Long term debts
2,000.00
2,100.00
Capital employed
8,755.00
10,211.00
Return on Assets (%)
23.13%
12.30%
Table 3: Return on capital employed
(Source: Created by learner)
iv. Current ratio
iv.
Liquidity Ratios
2018
2019
Current Assets
1,175.00
2,110.00
Current Liabilities
970.00
512.00
Current Ratio
1.21
4.12
Table 4: Current ratio
(Source: Created by learner)
v. Quick ratio
v
Liquidity Ratios
2018
2019
Current Assets
1,175.00
2,110.00
Inventories
350.00
674.00
Current Assets - Inventories
825.00
1,436.00
Current Liabilities
970.00
512.00
Quick Ratio
0.85
2.80
Table 5: Quick ratio
(Source: Created by learner)
vi. Inventory days
vi.
Efficiency Ratios
2018
2019
Inventories
350.00
674.00
Cost of Goods Sold
6,500.00
8,235.00
Inventory turnover days
20
30
Table 6: Inventory days
(Source: Created by learner)
vii. Receivable period
vii.
Efficiency Ratios
2018
2019
Accounts Receivable
760.00
1,340.00
Revenue
10,000.00
11,500.00
Receivable collection period
28
43
Table 7: Receivable days
(Source: Created by learner)
viii. Payable period
viii.
Efficiency Ratios
2018
2019
Accounts Payable
920.00
495.00
Cost of Goods Sold
6,500.00
8,235.00
Accounts Payable Days
52
22
Table 8: Payable days
(Source: Created by learner)
b. Justification of the performance of Panini Ltd for the year 2018 and 2019 respectively
Profitability
The profitability of the Panini Ltd has been evaluated with the help of using the gross, operating and return on capital employed of the business. One of the main purposes of using the profitability analysis is that it helps in measuring the changes into the profitability and financial analysis of the business. As opined by Walmsley et al. (2018), the effective evaluation of the financial strategies and marketing factors are directly interconnected with the effective evaluation of the business. Both the gross and operating profit margin is reduced to 28.39% and 20.24% respectively for the financial year 2019. Thus, it seems that Panini Ltd has started to lose its possession as it makes a negative impact on the financial performance of the organization.
Return on capital employed analysis has helped in estimating the total volume of the long term liabilities and shareholders’ equity against the EBIT of the organization (Daryanto et al. 2020). The total return has also reduced to 12.30% in the assessment year 2019 as it seems the total capital structure negatively affected in 2019. The classification of the business techniques and estimation of the managerial factors has helped in making the financial growth of the business (Yarmolenko, 2020).
Liquidity
The current and quick ratio has been analyzed in this evaluation that helped in reflecting the asset position of Panini Ltd in the last two years (Martin et al. 2020). The increase into the business techniques and classification of the managerial factors has played a crucial role in improving the financial potentiality of the business for a fixed period of time. As narrated by Sutarno et al. (2019), the ideal current ratio of a business is said to be 2:1 as the businesses are associated with evaluating the financial techniques that facilitate in maintaining the financial ratio.
The evaluation of the business policies and maintenance of the financial techniques should need to be properly evaluated that can be effective in maintaining the financial volume of the business. The total current ratio has been evaluated as 4.12: 1 in the assessment year 2019 as it seems that the business is starting to increase the volume of current assets as its negative impact has also been observed into the profitability of the business (Haralayya, 2022). According to the liquidity approach, it is not necessary to increase the current assets as the business should need to concentrate on investing in several operational sectors that can help in increasing the total volume of the profitability of the business (Psomiadis et al. 2018).
Efficiency
The efficiency ratio of the Panini Ltd has been made with the help of using the inventory, payable and receivable period. As believed by Zolfani and Chatterjee (2019), the reduction into the total inventory days for a fixed period of time should need to be maintained to help in making a smooth flow into the financial techniques of the business for a stipulated period of time. The inventory turnover days is increased to 30 days between two orders as it visualizes that the flow of capital has been reduced (Winckelmann et al. 2021).
The receivable collection period is also increased to 43 times as it implements a negative impact into the sustainable financial activities of the business. Increase of the time period between the money collection periods visualizes that the business is not able to improve the financial techniques of the business (Yanis and Furumoto, 2019). The debts are taking longer than the expected time to make payment of their debts which played a negative role in the development of the financial performance of Panini Ltd.
Conclusion
Based on the above discussion, it can be concluded that the financial performance of the business has not improved as the business strategies negatively moved into the financial year 2019. The planning and projection of the business strategies is not adequate as it makes a negative impact in evaluating the financial growth of the business. The planning basis is adequate and it visualizes sustainable impact in evaluating the promotional factors of the organization.
Both the total volume of profitability and liquidity position of the business affected within the financial year 2019. The changes into the financial strategies and increase into the financial planning required helped in making a strategic growth within the financial volume of the business. The estimation of the financial development and areas should need to be implemented to improve the financial growth of the business. The financial activities of the business should need to be associated with mitigating the business.
Reference list
Daryanto, W.M., Maharani, A.P. and Wiradjaja, N., 2021. Profitability Ratio Analysis Before and During Covid-19: Case Study in PT Japfa Comfeed Indonesia. Life, 8, p.30.
Haje, P., Arystanbaeva, A., ?ralbaeva, Z. and Kupenova, Z., 2019. The role and importance of accounting information system in the context of digitalization. Central Asian Journal of Social Sciences and Humanities, 5(1), pp.64-73.
Haralayya, B., 2022. Impact of Ratio Analysis on Financial Performance in Royal Enfield (Bhavani Motors) Bidar. Iconic Research And Engineering Journals, 5(9), pp.207-222.
Karagiorgos, A., Alexandra, G., Ignatiou, O. and Terzidou, A., 2020. Role and contribution of administrative accounting to small and very small businesses. Journal of Accounting and Taxation, 12(2), pp.75-84.
Martin, J., Endt, S., Wetscherek, A., Kuder, T.A., Doerfler, A., Uder, M., Hensel, B. and Laun, F.B., 2020. Contrast-to-noise ratio analysis of microscopic diffusion anisotropy indices in q-space trajectory imaging. Zeitschrift für Medizinische Physik, 30(1), pp.4-16.
Mazelis, L.S., Krasko, A.A. and Krasnova, E.V., 2021. Distribution of financial resources by areas of investments in the human capital of the region. Economic consultant, 36(4).
Monteiro, A. and Cepêda, C., 2021. Accounting information systems: scientific production and trends in research. Systems, 9(3), p.67.
Morozko, N. and Didenko, V., 2018. Financial management of small organizations based on a cognitive approach.
Psomiadis, D., Zisi, N., Koger, C., Horvath, B. and Bodiselitsch, B., 2018. Sugar-specific carbon isotope ratio analysis of coconut waters for authentication purposes. Journal of food science and technology, 55(8), pp.2994-3000.
Salehi, M., Mahdavi, N., Dari, S.Z.A. and Tarighi, H., 2018. Association between the availability of financial resources and working capital management with stock surplus returns in Iran. International Journal of Emerging Markets.
Scarpellini, S., Marín-Vinuesa, L.M., Portillo-Tarragona, P. and Moneva, J.M., 2018. Defining and measuring different dimensions of financial resources for business eco-innovation and the influence of the firms' capabilities. Journal of cleaner production, 204, pp.258-269.
?imsek, H. and Ozturk, G., 2021. Evaluation of the relationship between environmental accounting and business performance: the case of Istanbul province. Green Financ, 3, pp.46-58
Sutarno, S., Mesran, M., Supriyanto, S., Yuliana, Y. and Dewi, A., 2019, December. Implementation of Multi-Objective Optimazation on the Base of Ratio Analysis (MOORA) in Improving Support for Decision on Sales Location Determination. In Journal of Physics: Conference Series (Vol. 1424, No. 1, p. 012019). IOP Publishing.
Walmsley, T.G., Walmsley, M.R., Varbanov, P.S. and Klemeš, J.J., 2018. Energy Ratio analysis and accounting for renewable and non-renewable electricity generation: A review. Renewable and Sustainable Energy Reviews, 98, pp.328-345.
Winckelmann, A., Nowak, S., Richter, S., Recknagel, S., Riedel, J., Vogl, J., Panne, U. and Abad, C., 2021. High-resolution atomic absorption spectrometry combined with machine learning data processing for isotope amount ratio analysis of lithium. Analytical Chemistry, 93(29), pp.10022-10030.
Yanis, M. and Furumoto, Y., 2019. Lithological identification of devastated area by Pidie Jaya earthquake through poisson’s ratio analysis. GEOMATE Journal, 17(63), pp.210-216.
Yarmolenko, M.V., 2020. Intrinsic diffusivities ratio analysis in the Al-Cu system. Physics and Chemistry of Solid State, 21(4), pp.720-726.
Zolfani, S.H. and Chatterjee, P., 2019. Comparative evaluation of sustainable design based on Step-Wise Weight Assessment Ratio Analysis (SWARA) and Best Worst Method (BWM) methods: a perspective on household furnishing materials. Symmetry, 11(1), p.74.
