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Accounting and financial management is the process of formulating financial statements and managing the performance of the organisation so that business can be executed successfully. For all the managers it is very important to keep financial and accounting information in the form of accounting reports so that stakeholders can analyse actual position of the company (Alves, 2012). Main aim of this assignment is to enhance knowledge about financial and accounting management of an organisation. In this project report two different companies are going to be analysed first one is Bitmap Plc which is a manufacturing company of furniture and established in London, UK. Second company is Toyland Ltd which is a toy manufacturing company and operating business in London. For the purpose of analysis, various topics are discussed under this report that are financial ratios, working capital cycle, different types of investment appraisal techniques their benefits and limitations and sources of funds. Budgets, budgeting process and their relation with strategic plans and objectives are also covered in this report.
Bitmap Plc is manufacturing company which is dealing in furniture and operating business in London, UK. The Board of directors of the company have identified changes in financial statements. They have asked the management accountants of Bitmap Plc to form a report on the results of last two years of income statement and balance sheet. In this report different financial ratios and working capital cycle have been calculated (Armstrong, 2014).
1. Computation of financial ratios in order to analyse performance of the company
Ratio analysis: It is a technique which is used by various organisations to evaluate their profitability, efficiency, liquidity and other factors that may affect overall performance of business operations. Management accountant of Bitmap Plc have been asked by the directors to calculate financial ratios so that cause of changes in income statement and balance sheet can be identified (Arroyo, 2012). Different types of profitability, gearing, liquidity, asset utilisation and investors potential ratios are calculated in order to analyse actual performance of the company. The calculations are as follows:
- Profitability ratios:When the managers are willing to analyse actual profitability of the company than such type of ratios can help to determine that company is generating profits or facing losses. It also guide stakeholders to evaluate organisation's ability to acquire profits and this will help them to formulate appropriate decision regarding investment, providing credit and other. The management accountant of Bitmap Plc calculated gross profit and net profit ratio to determine overall profitability of the company (Beatty and Liao, 2014).
- Liquidity ratios:All ratios that are used to analyse organisations liquid strength are called liquidity ratios. Current and quick ratios are calculated by management accountant of Bitmap Plc to analyse overall liquidity of the organisation.
- Gearing ratios:Such ratios that are related to capital structure of a company and calculated to establish proper balance in to assets and liabilities are called gearing ratios. It is focused with the assessment of long term financial stability of business entities. It guides managers to analyse the proportion of funds which is related to internal and external sources. Management accountant of Bitmap Plc have calculated debt equity and total assets to debt ratio under gearing ratios.
- Asset utilisation ratios:All the ratios that are mainly used to analyse that organisation is appropriately using its assets to generate revenues or not. Management accountant of Bitmap Plc calculated fixed assets and total assets turnover ratio to assess utility of assets of the company.
- Investors potential ratios:The ratios that are calculated to provide appropriation information to investors are known as investor potential ratios. They use such ratios to analyse the rate which is going to be offered by the company on the invested amount. In Bitmap return on equity and dividend coverage ratios are calculated by management accountant of the company (Cheng and et.al., 2014).
Name of the ratio