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The report will discuss the role of management accounting in organization. Management accounting is a tool which is used by the organization in order to enhance the performance of the company. Further in the report, it will be discussed how management accounting can help various subsidiary companies of holding company XYZ Plc.
1.1 Improvement of business performance by using ratio performance
The management accounting or managerial accounting is widely used by organizations which help to create the accounting statements, reports, and documents. Such statements and reports further help the management of the company to make better decisions in order to enhance the performance of the company. In order, the ratio analysis is an accounting tool that helps to evaluate the efficiency and profitability of the company X square financial limited. In order it has been seen that the X square financial limited is a subsidiary company of XYZ plc. As per the view of the author Shad et al. (2019), Moreover, it can be said that the ratio analysis can help to provide the depth view of the organization X square financial limited. Through the ratio analysis the company can easily analyze the profitability as well as liquidity position for the particular time period.
The ratio analysis can further help the management of the company X square financial limited to analyze the profit margin as well as it can allocate the expenses. Also, the management can make the planning and strategy through the ratio analysis in order to fulfill the goal and objective of the company in near future. Through the ratio analysis the management can compare the performance of competitors in a huge manner, also through the ratio the management can identify the gaps and weaknesses of the departments. Moreover, through the ratio the management can analyze the “financial performance, liquidity, profitability, risk, solvency, efficiency, and operational effectiveness”.
1.2 Improvement of business performance by source of finance
The management accounting is widely used by the company in order for the decision making and future planning to fulfill the aim and objectives of the company X square financial limited. In order to be the source of finance, it refers to where a company gets funds or money to operate its business activity. Moreover, it can be said that the major three sources of finance that are widely used by the companies are “Retained earnings, debt capital, and equity capital”. Moreover, it can be said that the company X square financial limited can use this kind of source of finance which can further help to improve the performance and efficiency. As opened by the author Hussein et al. (2020), The retained earnings are an amount of profit an organization has left over after paying its all kind of direct and indirect expenses as well as income tax and dividends to the shareholders. The retained earnings are considered a very safe source of finance and the company can use such funds to enhance the performance of the company. Moreover, it can be invested into the business for purchase of new equipment as well as operational activity.
As narrated by the Wanjogu and Waithaka (2021), The second source of funds which is generally used by the company is debt funds. Moreover, it can be said that the debt fund is a good choice for investors to look at the portfolio. Additionally, the debt source of funding shows the leverage of the company and the threshold limit of debt is considered as 200 %. Moreover, highly leveraged companies can easily attract investors.
2.1 The usages of costing to improve the organizational performance
costing is a kind of accounting tool that helps to evaluate the overall expenses and overall cost of production for the company for a specific time period. In order, the company York Manufacturing LTD can use the costing method to improve the business performance. Through The costing method the company is able to allocate its resources and can utilize the resources in order to enhance the productivity and performance of the company. As stated by the Anwar et al. (2020), Moreover, it can be said that the costing also helps to price fixation as well as price control. Through the costing method the management of the company is able to make the decision and plan in order to fulfill the objectives of the company in the near future. Moreover, it has been observed that the costing method helps to provide the details of actual cost for the purpose of budgeting. Moreover, through the costing process the company York Manufacturing Ltd can easily verify its assets valuation.
As expressed by the Alzoubi (2022) The costing method in the organization provides a detailed view of all kinds of expenses which are related to manufacturing. As a result, the management of the company can make the decision and also the budgeting for the near future. Further, the costing data helps to fix the price of the particular product or service. Moreover, it can be said that the costing is very cost efficient and it can help the company in order to reduce the cost and enhance the cost efficiency. Moreover, it can be said that through the costing process the company is able to reduce the wastages, losses, as well as inefficiency that will further help to improve the operation performance and profitability of the company.
2.2 The usage of CVP analysis to enhance the organizational performance
The (CVP) cost volume profit analysis is a costing tool that helps to find out how the changes in variable and fixed cost can affect the profit of the company. As per the view of Kudryashova et al. (2020), The three elements that are considered in cost volume profit analysis which are “ cost, sales volume, and profit”. Moreover, it helps to evaluate how many units of products are needed for sales to reach a certain minimum profit margin. Through the (CVP) analysis the company is able to find the breakeven point of sales and also the target operating income. Additionally, through the cost volume profit analysis the management can evaluate the proposals which are related to the investment.
The (CVP) analysis helps to set up the basis of the budgeting purpose, and also it helps to manage the decision making and planning for the future. Moreover, through the CVP analysis the organization can examine the profit, cost and the price with any change that occurs in the sales volume.
3.1 Implementation of cost of capital method to improve the organizational performance
The cost of capital method helps to adjust the future cash flow for changes in the cost of capital as the company reduces its debts. Moreover, through the cost of capital method the company Zebra investment Ltd can gain the investment opportunity. Also, the cost of capital is a kind of important area in the financial management in order to making the decision and planning to fulfill the aims and objective in the near future. As narrated by the Shad et al. (2019), Moreover, it can be stated that the company can maximize its wealth through the cost of capital method. Moreover, the good cost of capital can able to attract the investors in order to the investment purpose. Also, the cost of capital plays a crucial role in the decision making as well as the financial leverage, and the capital structure for the company. Moreover, the cost of capital method helps to make the make the faster decision through the comparing the profitability which is one of the good aspects for management.
3.2 Implementation of investment appraisal method to enhance organizational performance
The investment appraisal methods are “payback, accounting rate of return, discounted cash flow method of net present value and internal rate of return”. Moreover, through the investment appraisal method the company Zebra investment Ltd can make the investment related decision based on the on the net cash flow and the opportunity cost. As opined by the Guo (2019), Four major investment appraisal which are” accounting rate of return, payback period, discounted cash flow, and investment risk”. Moreover, in the investment appraisal the discounted cash flow is the best technique that could be used by the company in order to make the paling and strategy for the company. Through the discounting cash flow, the management can make the best decision for the investment appraisal. Also, the (NPV) is one of the most important techniques that can be used by the company to better decision making. One of the important aspects of the NPV is, it uses the cash flow rather than the net earnings. Moreover, the management of the company can use the discounted cashflow method, which can play a crucial role in the decision-making process in the company.
Based on the report, it has been concluded that the management accounting plays a major role in the organization to make the decision and planning to gain and enhance the profitability in the near future. Further, it has been discussed the ratio analysis and source of finance and how the management can improve for better results. Also, it has been discussed the costing and CVP method and how it can help management in the decision-making process.
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