Business Finance And Economics Assignment Sample

Introduction

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1: Role of Accounting

i) Concern about Accounting and its Branches

The process of accounting is considered to be an important part and parcel for any major corporate organisation to define financial solidity and robustness considering the actual financial performance in the market. The concern for accounting largely complies with the tolerance of future financial securities for an organisation, which is determined by the obligation and vision of having a long-run business prospect. The concern for accounting largely comprises the accounting going concerned, in which the business paradigms of an organisation are primarily meant to justify prolonged continuity of business. As per the demonstrations and explanations of Shafer and Vovk (2019), the concern for accounting can be further categorised based on the branches of accounting. Relevant discussions on the available branches of accounting are further determined as follows.

Financial Accounting 

The first major branch of accounting consists of financial accounting, in which the major emphasis of organisations is mainly engrossed towards the upliftment of financial parameters. The basic features and attributes of financial accounting mainly consist of recording financial transactions and summarising them in a presentable manner. The final emphasis is given to the preparation of financial statements at the end of the accounting period to determine the profitability of the company.

Cost Accounting

The second branch of accounting is largely associated with the cost accounting measures, in which the major emphasis of an organisation is laid on estimating optimum operational costs for daily operations. The cost accounting measure mainly focuses on the fixed and variable costs for the company based on the operational activities of an organisation for a specific accounting year (financialpost.com, 2022). 

Management accounting 

The third important determinant and branch of accounting are associated with management accounting, in which the primary emphasis of the organisations is given to proposing suitable long-term business decision-making. The relevance of management accounting in an organisation further aids their respective managers and internal stakeholders to implement suitable communication in the organisation, which allows unity and diversity in organisational command.

ii) Need for Financial Reporting in decision-making 

The need for financial reporting in an organisation is a key aspect to further determining long-run business sustainability and robustness in the domestic as well as the international market. As per the explanations and statements of Chang, McAleer and Wong (2020), the need for financial reporting in the decision-making structure of an organisation further encourages companies to ensure the best possible financial structures, which justify maximised profitability. An example of the need for financial reporting in decision-making can be further attributed to the management of an organisation determining how the available organisational funds are being utilised within the organisation (theguardian.com, 2022). This further benefits the organisation to keep suitable monitoring and tracking of the financial resources, thereby justifying useful appropriation and allocation of funds.

2: Major Financial Statements 

i) Classification of Financial Statements

The relevance and importance of financial statements in an organisation are considered an important aspect to determine the suitable financial position of an organisation based on performance for a particular accounting year (cardiff.ac.uk, 2021). The financial statements can be further classified based on the categorisation of applicable accounts and ledgers involved in the company. Further discussion on the classification of financial statements has been conducted as follows

Balance Sheet

The first classification of the financial statement involves the Balance Sheet of a company. The main essentials and components of a balance sheet mainly include the thorough classification of assets and liabilities of a company involved in the entire accounting cycle. The assets of a company can be further classified based on their liquidity, which consists of Current Assets or Fixed Assets. The liabilities side of a balance sheet mainly consists of current and long-term liabilities as well as the total equity fund apportioned to the shareholders of a company. The assets side and liability side of the balance sheet should have tallied figures at the end of the financial year and the mathematical representation consists of Assets= Liabilities + Capital.

Income Statement

The second classification of the financial statement involves the Income statement of a company the important aspects and components of the income statement mainly involve the recognition of expenses and incomes for the organisation, to justify appropriate profitability for a particular accounting period. As per the opinions and illustrations of Salas Molina and Pla Santamaría (2018), the net profit from an income statement is usually arrived after deducting all-important operational costs for the company in a financial year from the corresponding figures of revenue. The income statement is deemed the most important financial statement for an organisation to define the actual business dynamics and financial sustainability of an organisation.

Cash Flow Statement 

The third important classification of the financial statement involves the cash flow statement, in which the resulting movement of cash is estimated for a particular organisation within a concerned accounting cycle. The cash flow statement of an organisation is further classified based on different types of organisational activities, which include Operating, Investing and Financing Activities. 

ii) Relevance of Financial Statements 

The relevance of financial statements can be further classified based on the layout and key terminologies associated with the preparation and conduct of financial statements in an organisation. The layout of financial statements can be further categorised based on layout of Balance Sheet, Income statement and Cash flow statements (prospects.ac.uk, 2021). The available layout of Balance sheet in an organisation involves the horizontal and vertical layout, in which the vertical layout emphasises the side-by-side presentation of assets and liabilities. Shi (2018) further stated that the layout of income statements involves single step and multiple-step forms of the income statement. The available layout for the organisations in terms of Cash flow statements involves the preparation of cash flows from operating, investing and financing activities in a horizontal format. The key terminologies involved in the operating activities of a cash flow statement include changes in working capital and other operational expenses. The key terminologies associated with the investing activities include purchase and sale of fixed assets such as inventory and machinery. The key terminologies associated with the financing activities include dividend income from the sale of shares and dividends paid to equity or preference shareholders. 

3: Calculation of Ratios

i) Operating Profit Margin

Year	Operating Profit Margin	Amount	Ratio
2019	Operating Profit	£ 240.00	9.60%
	Revenue	£ 2,500.00
2020	Operating Profit	£ 35.00	1.27%
	Revenue	£ 2,750.00

Table 1: Operating Profit Margin

(Source: Created by Learner)

The above table of operating profit margin suggests ratios of 9.60% and 1.27% respectively for the years 2019 and 2020 respectively. The formula used for computation of operating profit margin includes (Operating Profit / Revenue)*100

ii) Gross Profit margin

Year	Gross Profit Margin	Amount	Ratio
2019	Gross Profit	£ 650.00	26.00%
	Revenue	£ 2,500.00
2020	Gross Profit	£ 375.00	13.64%
	Revenue	£ 2,750.00

Table 2: Gross Profit Margin

(Source: Created by Learner)

The above table of gross profit margin suggests ratios of 26 and 13.64% respectively for the years 2019 and 2020. The formula used for computation of gross profit margin involves (Gross Profit/Revenue)*100. 

iii) Current Ratio

Year	Current Ratio	Amount	Ratio
2019	Current Assets	£ 595.00	3.13
	Current Liabilities	£ 190.00
2020	Current Assets	£ 690.00	2.34
	Current Liabilities	£ 295.00

Table 3: Current Ratio

(Source: Created by Learner)

The above table of current ratios shows ratio calculations of 3.13 and 2.34 respectively for the years 2019 and 2020 respectively. The formula used for computation of current ratio involves (Current Assets/ Current Liabilities). 

iv) Acid-Test Ratio

Year	Acid Test Ratio	Amount	Ratio
2019	Current Assets	£ 595.00	1.29
	Inventories	£ 350.00
	Current Liabilities	£ 190.00
2020	Current Assets	£ 690.00	0.95
	Inventories	£ 410.00
	Current Liabilities	£ 295.00

Table 4: Acid-Test Ratio

(Source: Created by Learner)

The above table of acid-test ratio suggests ratio calculations of 1.29 and 0.95 respectively for the years 2019 and 2020. Formula used for computation of this ratio involves deducting current assets and inventory and dividing them by current liabilities (Current Assets- Inventory)/ Current Liabilities.

v) EPS (Earnings per Share)”

Year	Earnings Per Share	Amount	Ratio
2019	Net Profit	£ 167.00	£ 0.79
	Number of Shares Outstanding	211.67
2020	Net Profit	£ 12.00	£ 0.04
	Number of Shares Outstanding	302.5

Table 5: Earning Per Share

(Source: Created by Learner)

The above table of Earnings per share involves ratio calculations of 0.79 and 0.04 respectively for the years 2019 and 2020. The formula used for calculation of earnings per share includes the proportion of Net profit by the number of shares outstanding. 

4: Management Accounting 

i) Importance of Management accounting 

The importance of management accounting is considered an area of significant importance further allowing organisations to implement suitable financial decision-making to justify prolonged business expansion in the industry and market. As per the observations and explanations of Zhang et al. (2020), the importance of management accounting in an organisation is further magnified, when the organisations enjoy a certain level of control and authority in their daily operational paradigms. This further ensures thorough diligence from all concerned stakeholders of the company to comply with the business objective and work collaboratively to achieve suitable business goals for the organisation. Shi (2018) further explained that the importance of management accounting also facilitates healthy and streamlined communication in the organisation, thereby reducing the perennial possibilities of an internal conflict in the organisation. 

ii) Importance of management accounting about control and decision-making 

Management accounting is considered an integral part of the organisational structure of a company, which mainly aims to establish a suitable parity in the financial performance as well as seek suitable alternatives. This is further applied to ensure ethical consideration for the organisation and prolonged market dominance. As stated by Chang, McAleer and Wong (2020), the importance of management accounting with respect to ascertainment of control further benefits organisational spearheads to keep proper track of financial resources and bear daily operational costs. This further improves the decision-making skills of the organisations to justify maximised profitability in the near and distant future of the business organisation.

Reference List

Books

Shafer, G, and Vovk, V 2019, Game-Theoretic Foundations for Probability and Finance : Theory and Applications to Prediction, Science, and Finance, John Wiley & Sons, Incorporated, Newark. Available from: ProQuest Ebook Central. [18 April 2022].

Journals 

Chang, C.L., McAleer, M. and Wong, W.K., 2020. Risk and financial management of COVID-19 in business, economics and finance. Journal of Risk and Financial Management, 13(5), p.102.

Salas Molina, F. and Pla Santamaría, D., 2018. Coding oriented learning in economics, business and finance. Modelling in Science Education and Learning, 11(1), pp.55-64.

Shi, W., 2018. EXPLORING COURSE DESIGN FOR A UNIVERSITY-LEVEL ESP-BASED COLLEGE ENGLISH PROGRAM AT UNIVERSITY OF FINANCE AND ECONOMICS IN CHINA. Journal of Teaching English for Specific and Academic Purposes, 6(1), pp.115-124.

Zhang, L., Xie, Y., Zheng, Y., Xue, W., Zheng, X. and Xu, X., 2020. The challenges and countermeasures of blockchain in finance and economics. Systems Research and Behavioral Science, 37(4), pp.691-698.

Online Articles

financialpost.com, 2022, Business Finance and Economics [online], Available at:  https://financialpost.com/pmn/business-pmn/charting-the-global-economy-inflation-pressures-mount-in-asia [Accessed on: 16.04.2022]

theguardian.com, 2022, Business Finance and Economics [online], Available at:  https://www.theguardian.com/business/live/2022/apr/12/uk-jobless-rate-wage-squeeze-inactivity-inflation-us-stock-markets-business-live [Accessed on: 16.04.2022]

Websites

cardiff.ac.uk, 2021, Business Finance and Economics [online], Available at: https://www.cardiff.ac.uk/study/undergraduate/courses/2022/economics-and-finance-bsc-econ [Accessed on: 16.04.2022]

prospects.ac.uk, 2021, Business Finance and Economics [online], Available at: https://www.prospects.ac.uk/careers-advice/what-can-i-do-with-my-degree/economics [Accessed on: 16.04.2022]