BTM4FUB Fundamentals of Business Finance Assignment Sample

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1. Introduction to BTM4FUB Fundamentals of Business Finance Assignment Sample

Business finance is an important concept that helps companies to invest in essential assets such as equipment, land, and buildings. The main purpose of the report is to analyses financial information and performance of Elite Escape for aiding in strategic marketing decisions. The understanding of financial information and the analysis of ratios is important for Elite Escape in evaluating profitability, liquidity, and financial risk. This effectively helps the company in guiding the marketing strategies and effective resource allocation. The report aims to show the importance of financial information, showing the qualitative aspects of good financial reports, and defining key accounting concepts. Finally, an analysis of the ratio from 2022 to 2024 is presented, and the key limitations of ratio analysis are discussed. Thus, through effectively interpreting clear and relevant financial information through analysis helps in aligning he marketing objective with financial health.

BTM4FUB Fundamentals of Business Finance Assignment Sample

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2. Importance of financial information

Defining Financial Information

The financial information refers to data related to monetary transactions, financial performance, and economic activities of individuals and businesses. This helps the stakeholders to assess the profitability, liquidity, and financial stability (Chen et al., 2021). They are different types of financial information like revenue and sales data, recorded expenses, profit generated, liabilities, equity data, cash flow statements, and investment records (Kulwizira Lukanima, 2023).

The main purpose of producing a financial statement

The financial statement consists of four key components like balance sheet, income statement, cash flow statement, and change in equity statement. The primary purpose of producing financial statements is to assess the company's financial health, analyze investment decisions, and ensure regulatory compliance. These factors effectively help support strategic planning for Elite Escape. The purpose of an organization producing financial reports is to communicate financial performance to various stakeholders, such as investors and creditors, attract investors, and make loan decisions.

3. Qualitative aspect of Good Financial Information key concept

Qualitative Characteristics of Good Financial Information Key Concept

Purposes of Financial Information

As per the conceptual framework for financial reporting, there are mainly two fundamental and three enhancing qualitative characteristics. The following characteristics are mentioned below:

Fundamental Characteristics

Relevance: The information must be capable of influencing the decision through helping users by evaluating the past, future, and present events in predictive or consistency value (ifrs.org, 2025).

Faithful presentation: The financial reports shall accurately reflect the economic phenomena. The purpose of this is to reflect a complete, neutral, and findings free from errors.

Enhancing characteristics

Compatibility: This enables users the identify similarities and differences across the different entities and periods.

Verifiability: The different information users must reach a similar conclusion regarding the provided information. Thus, proving the information is a sound basis formed on accounting principles is verifiable.

Timelines and understandability: The financial information is required to be availed on the required time (accaglobal.com, 2025). The presentation of the information is to be clear and understandable so that people with basic knowledge can easily understand.

Influence of the characteristics satisfying the motives of stakeholders

Investors

The investors rely on relevance and faithful representation to assess the profitability and risk. The use of relevant data helps them in forecasting returns while providing a faithful representation for developing trust in reported earnings and financial position.

Lenders and Creditors

The verifiability and timeliness are very important for lenders due to the need of timely audit support data for analyzing the company's creditworthiness and ability to pay. If the information is unreliable, then this creates a lending risk for the business.

Management

The comparability and undeniability help the internal stakeholders to identify a standard performance and make a strategic decision-making process (Boyanov, 2024). If the management is provided with clear and comparable data across the period helps in undertaking effective planning and control functions.

4. Key Accounting concepts

Characteristics of good Financial Information

Revenue: The income earned from normal business operations, generally from sales, is known as revenue. Example: Elite Escape has earned £5200K in sales revenue from the travel package.

Cost of services: The direct cost incurred for the delivery of a product or service is called the cost of services, such as labour or materials. For example, in 2024, Elite Escape spent £3124K on costs involving tour operations and accommodations.

Gross profit: The difference between revenue and the cost of services shows the profit that occurred before expenses. Example: £5200K (Revenue) - £3124 (Cost of services) = £2076 is the gross profit.

Operating profit: The profit that is obtained after subtracting operating expenses like marketing, depreciation, and administration is called operating profit (Atrill and McLaney, 2018). Example: Elite Escape had £661K Operating profit after reducing operating expenses.

Asset: The resources that are owned by a company and have economic value are called assets. Example: the company Elite Escape owned cash, equipment, and receivables, having a value of £6968k in the balance sheet.

Liability: The obligations that a business owes to others are known as loans or repayable. For example, in 2024 total liability of the company was £2449k is considered short-term and long-term debts.

Owners' Equity: The owners' equity refers to a residual interest in assets after the deduction of liabilities (Otaka, 2024). Example: the owner's equity for Elite Escape in 2024 was £4519 K (total assets - total liabilities).

Motives of the Stakeholders

The motives for the stakeholders are to seek financial information for decision-making. The investors wants to assess the profitability and growth, lenders evaluate the credit worthiness and risk (Atrill and McLaney, 2018). To the management, the data is used for planning and performance tracking. In the organization, the employee's interest is in job stability and security.

6. Ratio Analysis

Calculation of the Profitability Ratios

Figure 1: Profitability Ratio Calculation

The analysis of the above-mentioned Figure 1 shows the calculation of profitability ratios for 2022 to 2024. Elite Escape saw peak profitability in 2023 with strong gross and operating margins driven by effective cost control (Weetman, 2019). In 2024, both the ROCE and ROSF declined, indicating a rising operational cost and reduced efficiency despite high revenue. The reduction in gross profit margin to 39.92% in 2024 and operating margin to 12.71% in 2024 shows a reduced profitability.

Liquidity Ratio

Figure 2: Calculation of Liquidity Ratio

The above-mentioned figure 2 shows the liquidity ratio calculation through the current ratio; an ideal rate of 1 shows that the business can meet short-term obligations. In 2022, the liquidity was strong at 2.07, but over the year in 2024 it reached 1.04, just above the break-even points (McLaney, 2009). The reduced trend suggests a rising short-term pressure due to increasing long-term debt.

Gearing Ratio

Figure 3: Gearing Ratio

In the above-mentioned Figure 3, the liquidity ratio of Elite Escaped is calculated through the use of the gearing ratio. The gearing ratio helps in measuring the proportion of financing from debt vs equity. The value of the gearing ratio to 0.438, a rise from 0.226 in 2022 and 2023, showing a greater financial risk as there is more reliance on long-term debt, which has nearly doubled.

Financial analysis

Profitability Performance: Elite Escapes enjoyed a strong revenue growth from 2022 to 2024, increasing by 59%. However, the Gross profit margin declined in 2024 due to a higher increase in the cost of services. The operating profit margin peaked during 2023 but has reduced in 2023 2024, showing an increase in operational inefficiencies. In a similar trend in ROCE in 2023, an improvement of 16.53% was seen before reducing to 1.016% in 2024, which showed the reduction in capital invested.

Liquidity Performance: The current ratio steadily reduced to just the value of 1.07 in 2024, showed a reduced capacity of Elite Escape's liquidity position and short-term financial flexibility. The change is mainly due to a higher rise in short-term debt and a limited rise in current assets.

Gearing Ratio: The gearing ratio has notably increased in 2024 to 22.8% from 2023, showing a doubling of the value. This shows Elite Escape higher dependence on long-term borrowing to finance operations and expansion (Watson and Head, 2019). This is still in a manageable level; however, risk of default is present.

7. Limitations of Ratio Analysis

Concerning the analysis of the ratio of Elite Escape, the main types of limitations identified are mentioned below:

Historical Data Dependence: The ratio of the Elite Escape is calculated based on past financial information. The major factor is that it might not reflect the current or future financial conditions. Thus, limiting the impact of usefulness in forecasting decision making.

Inflation Distortion: The financial statement, due to its historical nature, results in ignoring the impact of inflation (Brealey et al., 2012). This results in negatively affecting the return on assets and capital employed calculator in the long term.

Accounting Policy Variation: There might be different methods of accounting information use by companies, thus can result in inter-company comparison being useless.

Lacking quantitative farsightedness: The ratio focuses mainly on quantitative data and ignores qualitative information. This results in a mix of factors like management quality, brand reputation, and market conditions.

8. Conclusion

The analysis of the above analysis, Elite Escape, demonstrated peak profitability in 2023 but faced declining margins and liquidity in 2024, thus raising concerns over financial efficiency and solvency. On an overall basis, the company showed growth potential but struggled with rising costs and debt resilience. The strengths showed high gross profit in 2023, showing a strong position of assets. The weakness showed a declining operating margin, a reduced current ratio, and a rising gearing ratio. To address the issue, Elite Escapes must optimize cost control, reduce short-term borrowings, and prioritize cash flow management. This helps in enhancing financial discipline while effectively managing growth.

Reference

• accaglobal.com,(2025),Qualitative accounting characteristics.,Available at:https://www.accaglobal.com/gb/en/student/exam-support-resources/foundation-level-study-resources/fa2/fa2-technical-articles/qualitative-acc.html#:~:text=Predictive%20value%20means%20that%20the,to%20make%20those%20previous%20predictions. (Accessed on: 10/06/2025)
• Atrill, P and McLaney, E. J. (2018) Financial accounting for decision makers. 9th edition.
• Atrill, P and McLaney, E.J. (2018) Accounting and Finance for Non-Specialists. 11th edition.
• Boyanov, K., (2024). BENCHMARKING IN THE PUBLIC SECTOR: A STRATEGIC TOOL FOR ENHANCING PERFORMANCE AND ACCOUNTABILITY. Journal of Management Sciences and Applications (JOMSA), 3(2), pp.185-196.
• Brealey, R.A., Myers, S.C., Allen, F. and Mohanty, P. (2012) Principles of corporate finance. Tata McGraw-Hill Education
• Chen, Z., Chen, W., Smiley, C., Shah, S., Borova, I., Langdon, D., Moussa, R., Beane, M., Huang, T.H., Routledge, B. and Wang, W.Y., (2021). Finqa: A dataset of numerical reasoning over financial data. arXiv preprint arXiv:2109.00122.
• Education.
• ifrs.org,(2025),Conceptual Framework for Financial Reporting,Available at:https://www.ifrs.org/issued-standards/list-of-standards/conceptual-framework/ (Accessed on: 10/06/2025)
• Kulwizira Lukanima, B., (2023). An Overview of Financial Information. Corporate Valuation: A Practical Approach with Case Studies, pp.153-174.
• McLaney, E. (2009) Business Finance: Theory and Practice. 8th edition. Harlow: Pearson Education.
• Otaka, S., (2024). Rethinking the concept of equity in accounting: Origin and attribution of business profit. Accounting, Economics, and Law: A Convivium, 14(3), pp.373-394.
• Watson, D. and Head, A. (2019) Corporate finance: principles and practice. Harlow: Pearson
• Weetman, P. (2019) Financial Accounting. 8th edition. Harlow: Pearson Education.