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The macroeconomic factors make its impact on the competitive environment of a business by implementing its impact on the interest rates, international trading strategies, certain inflation rates and economic growth rate of an organization. In the second task, the role of accounting in association with the decision and report making abilities will be described in this section. The differentiation between the major financial statements and the layout of the financial projection are going to be analyzed in the third section.
The improvement in the financial performance of an organization can be reflected with the help of increasing the total volume of the total assets of a business for a given period of time. The operating margin, current ratio, earning share ratio and the gross ratio are going to be evaluated into the financial ratio analysis of this fourth part of the analysis. The discussion of the management accounting and its relevance into the planning policies and controlling strategies of the organization are defined in the fifth section of this discussion.
2.1 Task one: Business performance and competition
i. Discussion on the main determinants of the financial performance
The significance of using the determinants to evaluate the financial performance is directly related with evaluating the sustainability performances of business for a stipulated time. The determinants that are used in evaluating financial performances are the leverage, capital adequacy, liquidity, business sizes and operational volume that are considered in accumulating the financial volume of a business. As opined by Benford et al. (2018), increase into the business activities and maximization of the total volume of a business are said to be two key areas for accessing the managerial techniques of an organization.
ii. Distinguish between the internal and external determinants of financial performances
The external and internal determinants of a business can be identified properly as the features of the determinants are different from each other. The internal determinants of a business are size of the business, total capital structure of the organization, the liquidity report of a business for a stipulated period of time, the quality of assets and assets management techniques of the organization. As narrated by Pusca (2019), the external business risks of an organization are more complex and rigid than that of internal determinants of financial performances. The external determinants are inflation, exchange rates, GDP and interest rate of the business. The relationship between the internal and external determinants is that the internal factors are associated with the size, growth, and production volume and business growth factors of an organization.
iii. Factors that make an impact on competitive environment
The competitive environment of a firm is affected by the five main elements and these elements make an impact on the financial performances and economical growth rate of the business as well. Increase into the total volume of the business and changes into the financial policies make its cruel impact into the sustainable business model of the organization. As narrated by Ledón et al. (2018), the evaluation of the growth share matrix and maintaining competitive strategies implemented business policies. The entry of a new business which can be able to deliver the same product at reduced price rates directly impacts the competitive environment. The power of the buyers and suppliers into the market has the impact to implement and rectify the financial activities of the organization.
The competitive rivalry and substitute products are visualized as the key factors that make its impact into the both internal and external environment of a business. As mentioned by Adel et al.(2020), various kinds of factors into the competitive advantage have been followed to increase the business volume of an organization. Scale of economy, raw materials cost, maintenance costs, inventory costs are considered to evaluate competitive advantage of an organization. Through the help of analyzing the industrial economic and sustainable characteristics, the business strategies and financial growth potentiality of a business has been determined.
2.2 Task two: Definition of role of accounting
i. The connection of accounting and its branches for decision making
One of the perspectives of using accounting is to track the incomes and expenditure of the business. The statutory compliances of the business and the financial development of the organization are two main roles of the accounting. As discussed by Akhtar et al. (2019), the maintenance of the financial aspects and the proper analysis of the business can be maintained with the help of the several accounting principles into the business. However, the changes into the financial techniques and marketing development of the business have a massive impact on the financial techniques of the company. Financial management and resource management of an organization are said to be basic factors of the business analysis. Evaluating the financial policy and controlling the financial budgets of a business are termed as main areas of the business evaluation.
The other role of accounting is stated as preparing the budgets of an organization and implementing the planning strategies of a business in such a manner that can help in developing the financial activities of the business. As evaluated by Negrão et al. (2020), classification of the business policies and improving the business development factors of an organization creates policies of the business. Making improvement into the financial reporting system and maintaining the financial reports of a business in a coherent manner are the basic aspects of accounting in a corporate organization. The improvement in transparency, mobilizing the investment strategy and promoting the financial stability of the business are considered as the primary business areas into the financial institution.
ii. Importance of accounting rules and financial reporting system
The accounting rules used to evaluate the financial system of the organization are complementary to each other as it helped in increasing the total volume of the operational services of the business. The comparison procedures of the financial statements can be properly evaluated with the help of using a financial reporting system into the business. The auditing procedures within the business have been simplified by understanding various kinds of rules of the financial statements. The perspective of making frauds and manipulation into the business are reduced due to the improvisation into the financial development into the business. The financial statements of an organization are said to be more reliable and prominent in the course of maintaining the promotional activities of the business.
One of the main areas of using the accounting rules is to bring informing into the overall financial statement analysis procedures of a business. Increase in the total financial volume and development of the business strategies helped in improving the global financial volume of the business. As narrated by Navarrete et al. (2021), data presentation strategies of a business are being simplified with the help of maintaining the financial growth and improving the potentiality of the business. Classification of the managerial techniques and assistance of the auditors of the organization make a decent impact into the financial reporting system of the business.
2.3 Task three: Major financial statement analysis
i. Balance sheet analysis
The main purpose of the balance sheet is to evaluate the assets, shareholders’ equity and liabilities of the business. The perspective of using the balance sheet is to provide the relative information about the financial projection and liquidity of a business. As narrated by Varadarajan (2020), improvisation into the business techniques and increase of the financial strategies should need to be implemented for making the business effecitve as the financial performances of an organization have been reflected. The key elements of the business that are used in the financial analysis are assets, net worth of the organization, liabilities and information about the equity of the business (Business standard.com, 2022). The reduction in the total financial liabilities of a business are evaluated as one of the main reasons for developing the financial growth and make clear visualizations about the financial performances of the organization.
ii. Cash flow statement analysis
Cash flow statements of a business are categorized into three different parts such as investing, operating and financing activities. Increases in the total volume of the cash inflows of the business are said to be main areas to increase the financial strategies of the business. As opined by Wijaya and Suasih (2020), the increase in the financial statements and maintenance of the financial strategies need to be followed to maintain the sustainable business activities. The free cash flows and unlevered cash flows are also considered into the cash flow statement of the business. The necessary changes into the balance sheet data has been placed into the cash flows from operating activities of the business that helps in providing the necessary information about the business. The changes into the non cash expenses and several business transactions have been properly evaluated for the purpose of evaluating the financial projection in the cash flow analysis.
iii. Income statement analysis
The income statements of a business are segregated into three different parts such as revenue and financial expenses of the organization. One of the main purposes of evaluating the income statement is to evaluate the net income of the organization that is able to implement financial strategies of the business. Changes in promotional activities and implementing the financial techniques are considered as most of the key areas to evaluate the financial policies of an organization (Economictimes.UK, 2022). The total revenue, operating expenses, marginal revenue and financial growth rates are used to determine the income statement of the business. Total net capital introduction for a business within the given period of time are considered as the main areas for making financial evaluation of the income statement analysis of a business.
2.4 Task four: Financial ratios
i. Operating margin analysis
|Financial ratio analysis of XYZ Ltd|
|Operating profit margin (%)||10%||1%|
Table 1: Operating margin
(Source: Created by learner)
ii. Gross profit margin
|Gross profit margin (%)||26%||14%|
Table 2: Gross profit margin
(Source: Created by learner)
Table 3: Current ratio
(Source: Created by learner)
|Acid test ratio|
|Acid test ratio||1.289473684||0.949152542|
Table 4: Acid test ratio
(Source: Created by learner)
|Total shareholders' equity of XYZ Ltd||400||400|
|Price per share||0.5||0.5|
|weightage on total number of shares||800||800|
|Earnings per share||0.21||0.02|
Table 5: Earning per share
(Source: Created by learner)
vi. Explanation about the impact of ratios in XYZ Ltd
The operating profit of XYZ Ltd has been reduced to £35 million in the year 2020 which is said to be 14% of the profit observed in the previous year (Yahoo finance.com, 2022). Increase in the total volume of profit and improvement in the financial volume of the business has helped in increasing the business activity of XYZ Ltd. However, it has been observed that total operating profit margin of XYZ Ltd is reduced to 1% in the assessment year 2020 which was 10% in the year 2019 (Statista.com, 2022). Increase in the total revenue of the business has helped in reflecting adequate projection about the financial performances of the business that helped in making sustainable development in its various operational channels.
The current ratio of XYZ Ltd was 3.13: 1 in the year 2019 and it has been determined as 2.34: 1 in the financial year 2020. That main reason behind the reduction in the total current ratio of its business is the increase in the total current liabilities of the organization. The major area of XYZ Ltd is that it needs to make sustainable development into the business and is considered as improving the financial growth into the business (Statista.com, 2022). In the year 2020, the current liabilities of XYZ Ltd increased to £295 million which will negatively impact the acid test and current ratio of the organization (Yahoo finance.com, 2022).
2.5 Task five: Management accounting
i. Discussion on management accounting
The perspective of management accounting is said to be a process in which the long term and short term obligations of the business have been analyzed. The main purpose of using management accounting is to raise the total volume of profit of a business and reduce the total level of losses observed for a given period of time. As idealized by Zin and Ibrahim (2020), improvisation of the business techniques and maintaining the financial volume of the business has helped in making sustainable growth analysis into the business. The changes have been implemented as it can be able to improve the financial growth analysis of the organization. The detailed information about the financial analysis of the business and valuation of the total resources of the business are analyzed with the help of resource management in management accounting (Forbes.com, 2022).
With the help of various managerial techniques, the financial systems and marketing issues of the business have been identified. As visualized by Benford et al. (2018), increase in the volume of operational services and maintenance of the financial development can be effective in narrating the financial growth of the organization. Thus, with the help of marginal costing, marginal analysis and budgetary control techniques the financial performance of the business has been analyzed.
ii. Importance of management accounting in accordance with planning
The main positive aspects of the management accounting are that it helped in evaluating the trend analysis of the organization. The planning policies and implementation of the financial leverage analysis into the organization have helped in making planning strategies within the business. As idealized by Ledón et al. (2018), projection into the business activities and development of the business policies need to be implemented for making as it helps in developing the financial activities of the organization. Various kinds of analytical techniques have been applied into the business that helped in increasing the potentiality of evaluating the decision making abilities of the business (Gov.UK, 2022). Concentrating on the managerial activity of the business has helped in identifying the recent defects and issues into the managerial activities of the corporate institution and it helped in making the decision making abilities of the organization adequate and sustainable.
Based on the discussion, it has been observed that both internal and external determinants are necessary for evaluating the financial performances of the business. The internal determinants are said to be macroeconomic factors and the external demerits are considered as macro economic factors. Specific accounting policies and strategies are required for evaluating the decision making abilities of the organization.
The two financial statements such as income statement and the cash flow statement analysis are different to each other due to the structural, elemental and presentation variations. The financial ratio analysis helped in reflecting a reduced position of XYZ Ltd in the year 2020 as the overall growth of the business has declined. With the help of introducing the various areas of management accounting, the planning and decision making abilities of the business has been improved. Effective relationships about different factors of the business have been analyzed in management accounting according to as it can help in developing financial information of the organization.
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