BM414 Importance of Finance and Accounting

Topic-FINAL DECISION MAKING

Learning outcomes-

LO1 What terms are used in financial statements and also explain its structure

LO2 Make use of the management accounting techniques for planning, control and decision making within the organisation

LO3 produce the calculations for important accounting ratios and also elaborate its importance for the users of financial statements

LO4 What role is played by finance and accounting in the organisation. Explain this from the perspective of reporting and decision making

Scenario-

A UK based company, Alpha limited is a manufacturing unit that was initiated in 1954. company has certain plans with respect to expansion of its operations by covering other parts of UK in upcoming 10 years. Below are the attached financial statements.

Task-1

Functions of accounting and finance is important to any organisation. You are required to do a critical evaluation of its roles. Make sure that the evaluation includes examples also.

Task-2

Provide the calculations of the ratios that are required and also provide the comments on performance of company from the perspective of potential investors

• Return on capital employed
• Net profit margin
• Current ratio
• Average Receivable days/ Debtor’s collection period
• Average Payable days/ Creditors collection period

The summarised financial statements-

	For the year ended 31 Dec. 2017		For the year ended 31 Dec. 2018
	£000	£000	£000	£000
Sales revenue		2,400		3,000
Cost of sales
Opening inventory	600		225
Purchases	1,350		2,400
	1,950		2,625
Less: Closing inventory	(225)	(1,725)	(450)	(2,250)
Gross profit		675		750
Operating expenses		(300)		(337.50)
Finance cost		(75)		(150)
Net profit		300		262.50

Statement of financial position	As at year to 31 Dec. 2017		As at year to 31 Dec. 2018
	£000	£000	£000	£000
Non-current assets		1,477.50		3,000
Current assets
Inventory	225		375
Receivables – trade	450		600
Prepayments	45		52.50
Cash	37.50	757.50	7.50	1,035
		2,235		4,035
Issued share capital		450		450
Share premium account		150		150
Retained earnings		562.50		825
		1,162.50		1,425
Non-current liabilities
10% loan notes		750		1,500
Current liabilities
Payables – trade	285		1,050
Accruals	37.50	322.50	60	1,110
		2,235		4,035