MGBBT1FBF Fundamental of Business Finance Assignment Sample

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Introduction - MGBBT1FBF Fundamental of Business Finance Assignment Sample

Business finance means the funds required by the business to commence, operate and expand. The report will state about the financial performance of the 7 Seas Restaurant that offers variety of services such as hot & cold starters, dishes, desserts and so more. The aim and objective of the report is to represent the financial information of the company so that it assist in taking decisions to different shareholders. It will outline motive of diverse stakeholders for financial information including investors, suppliers, investors and so more. It will explain feature of financial information and limitation of ratio analysis. The report will measure 7 Seas Restaurant profitability with the help of ratio analysis. For students seeking guidance, professional assignment writing help is available to assist in producing high-quality academic submissions.

Financial Information

Financial information is defined as financial statement that represents particular details related to financial activities as well as performance of a business (Turner, Weickgenannt and Copeland, 2022). The information is used to make decisions related to operation, investment, taxation and credit.

Motive of stakeholders for financial information of 7 Seas Restaurant

The stakeholders of a company remain interested in knowing financial position, performance and profitability of the business. The motive of different stakeholders of 7Seas Restaurant is as under:

• Government (HMRC): The motive of government in financial information of 7Sesa Restaurant includes gaining knowledge of the company`s total income (Huang, 2022). This leads to help the government to make taxation decision or to understand company`s operations.
• DFDS Seaways: The DFDS Seaways is a shipping company. The company evaluates financial position of 7 Seas Restaurant to understand the profitability and performance of the business. It enable the stakeholder to make decision regarding doing business with 7 SEAS Restaurant so that able to generate cash flow from operations.
• Suppliers of raw material: Supplier analysis company`s financial information with the motive of evaluating business capacity to make payment of bills on time. It assist them to aware about company`s soundness so that enhance business with them (Shevchenko et al, 2020).
• Potential Investors: Investors with the help of financial information get awareness about company`s expenses, revenue, debt load, ability to meet short-term and long-term obligation. It enables investors to make investment decision within the company (Atmeh, Shaban and Alsharairi, 2020).
• Banks and Financial Institution: Banks and financial institution utilize financial information of 7 Seas Restaurant to determine the soundness, healthiness and creditworthiness of business to receive a loan. It also use by the banks to extend, terminate as well as restrict the existing loan.

Purpose and characteristics of good financial information

The objective of the financial information is to furnish details about the business financial position, performance as well as changes in the financial position so that enable the different stakeholders to make certain decisions. The Good financial information possesses several characteristics which address motive of multiple stakeholders. These are as under:

• Faithful representation: One of the good financial information feature is faithful representation means showing complete transaction, without any bias and error related to calculation (Gjoni-Karameta et al, 2021). For instance, 7 Seas Restaurant faithfully representing information provide accurate, fair and valuable information to the investors , government, suppliers, banks as a result they able to take right decision according to their relevant area.
• Relevance: Reliable financial information refers to accounts that furnish information about the past events and aids in making future predictions about profits and financial problems (Almagtome and Abbas, 2020). For instance due to the reliable feature of financial information the investor of the company able to attain their objective of doing right investment.
• Comparability: It refers to a procedure of analyzing one financial period with other to efficiently understand company`s performance and trends. These characteristics of the financial information enable the 7 Seas Restaurant stakeholders to evaluate and differentiate financial report to make decision. For example, the application of the loan passed by the banks after comparing the profitability level of 7Seas in previous five years, it helps the stakeholder to measure credit repayment capacity of the business as a result help in taking decision efficiently.
• Understandability: The feature includes measuring how simply different stakeholders and users can understand the financial information of a company. As financial information have several pages, complex financial vocabulary and dynamic calculations which make little difficult to easily understand (Characteristics of financial statements, 2024). Thus, effective financial information consist notes explaining information of financial position. Theses lead to aids suppliers to understand the ability of 7 Seas Restaurant to make payment bill on time to enhance supplier of raw material more.
• Verifiability: It means ability of financial information to represent information in accurate and reliable manner as a result able to furnish same result when provide same data and conditions (Huang et al, 2020). The characteristics of the financial information aid the stakeholders of 7Seas to gain accurate information to make their decision. Correct information aids the government to charge right amount of tax from company.
• Timeliness: The feature includes how promptly the financial information available to the different stakeholders. These characteristics helped the investors to make rapid decision regarding doing investment in restaurant by purchasing the share of the business. In addition, banks can check the current capacity of business regarding paying debts so that effectively make decision of granting loan efficiently.

Thus, the features of financial information significantly enable the stakeholders to address their motive effectively.

Ratio analysis of 7 Seas Restaurant

Ratio analysis helps the 7 Seas Restaurant to evaluate its business performance, profitability and ability to pay long-term and short-term obligations (Fridson and Alvarez, 2022). Ratio analysis of company for five years is as under: 

Gross Profit Ratio: It refers to the profit of the company after deducting cost of goods sold (Nariswari and Nugraha, 2020). 7 Seas Restaurant incurred gross loss in 2019 and 2020 and then gross profit increase but decline in 2023 by 6%. It means company expenses increase that needs to control.

MGBBT1FBF Fundamental of Business Finance Assignment Sample

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Operating Profit Ratio: The ratio calculates operating profit of business after paying overall business cost but earlier paying tax. Operating profit of company decline by 1% in 2023, it means that company should focus on decline cost by using technology.

Net profit ratio: It is percentage of total profit of business after taxes. Company net profit slightly increase represent 7 Seas efficiency in control cost.

Return on Investment: It is percentage of net profit over the overall cost of the investment (Mudzakar et al, 2021). Company`s return of investment is positive in 2023 with 18.3% which was 0% in 2022.

Return on Equity: The ratio compute the value of asset that is financed by using owner`s equity. In 2022 and 23 the company 7 Seas have high equity ratio compare to previous means high contribution of shareholder to business resources.

Assets Turnover Ratio: It computes efficiency of company it utilizing own resources to build more sales or revenue (Patin, Rahman and Mustafa, 2020). In previous 5 years company ratio is less than 1 means its total assets are not building sufficient revenue.

Current Ratio: It refers to business capacity to pay short-term obligation within one year. In 2022 and 2023, 7 Seas current ratio is effective as it above 1 means it have more current asset than current liabilities to pay its debt.

Quick Ratio: It shows ability of business to convert liquid asset into cash so able to pay short-term expenditure. Earlier company`s capability to pay current liabilities is less but current years able to pay off current debts immediately.

Equity Ratio: It is a ratio compute amount of leverage used by business (Yanto, Christy and Cakranegara, 2021). The company ratio above 0.63 shows it’s a conservative company means funding its assets via equity than debt.

Debt Ratio: It is percentage of total debt to total assets. 7 Seas debt ratio is below 0.4 shows company credit worthiness. The company can get loan easily.

Limitation of the ratio evaluation

Ratio analysis refers to a quantitative process of evaluation company`s financial efficiency, revenue, liquidity and profitability by analyzing its financial records and statement correctly. There is some of limitation of ratio analysis which leads to make sometime information ineffective. These are as under:

• Accounting policies: To calculate the ratio different organization use different accounting policies to record transaction. Also when the company changes its accounting policies as it use previously different one as a result it make difficult for the users to easily compare it as it leads to represent misleading result.
• Avoidance of external factor or price level changes: The ratio analysis usually ignores changes in external factors such as inflation, recession and so more. Various ratios are calculated while using historical costs and overlooking fluctuation in price level between the periods (Du et al, 2020.). Correspondingly it is not able to reflect correct financial position of the business.
• Ignorance of qualitative aspect: Evaluation of ratio only considered quantitative or monetary aspect it not include qualitative aspect such as human factor. Referring to this, it not represent clear picture of company.
• Opportunity for window dressing: Various businesses easily make changes in the year end to its financial statement, to enhance their ratios. This leads to present incorrect information to investors and other stakeholders to influence their decision (Barth, Li and McClure, 2023).
• Lack of standard definition of the ratio: One of the major limitation of ratio analysis is lack of standard definition to calculate ratio. For instance, to calculate the current ratio, some firm considered bank overdraft in current liabilities while others ignore it. As a outcome of this, comparison become difficult between two firms.

Thus, the limitation of ratio analysis makes the representation of financial information inaccurate as well as creates difficulty in better comparison with competitive firms.

Conclusion

To sum up all it is articulated that fundaments of business finance aids in recognizing potential risk and allow executing strategies to minimize impacts. The present study stated about the financial information of the 7 Seas Restaurant by calculating different ratios from the previous five years. The report outline motive of different stakeholders from financial information as investor evaluates to make investment decision, government for taxation decision, DFDS Seaways for enhancing business and bank to know credit worthiness of business. The feature of financial information is reliability, understandability, fair representation and so more. The report evaluated limitation of ratio analysis such as ignorance of price level, quantitative aspect, change in accounting policies and so more. The 7 Seas Restaurant should focus on creating new strategies that provide more value to business, it needs to rebalance it investment as the company have 0% of return on investment in 2019, 2020 and 2022.

References

Books and Journals

• Almagtome, A. and Abbas, Z., 2020. Value relevance of financial performance measures: An empirical study. International Journal of Psychological Rehabilitation, 24(7), pp.6777-6791.
• Atmeh, M., Shaban, M. and Alsharairi, M., 2020. Corporate social responsibility: Motives and financial performance. International Journal of Financial Studies, 8(4), p.76.
• Atrill, Peter and McLaney, E. J. (2018) Financial accounting for decision makers. 9th ed. Harlow: Pearson
• Barth, M.E., Li, K. and McClure, C.G., 2023. Evolution in value relevance of accounting information. The Accounting Review, 98(1), pp.1-28.
• Du, E., Terrer, C., Pellegrini, A.F., Ahlström, A., van Lissa, C.J., Zhao, X., Xia, N., Wu, X. and Jackson, R.B., 2020. Global patterns of terrestrial nitrogen and phosphorus limitation. Nature Geoscience, 13(3), pp.221-226.
• Fridson, M.S. and Alvarez, F., 2022. Financial statement analysis: a practitioner's guide. John Wiley & Sons.
• Gjoni-Karameta, A., Fejzaj, E., Mlouk, A. and Sila, K., 2021. Qualitative Characteristics of Financial Reporting: An Evaluation According to the Albanian Users‟ Perception. Academic Journal of Interdisciplinary Studies, 10(6), pp.35-47.
• Huang, F., Cao, Z., Guo, J., Jiang, S.H., Li, S. and Guo, Z., 2020. Comparisons of heuristic, general statistical and machine learning models for landslide susceptibility prediction and mapping. Catena, 191, p.104580.
• Huang, Y., 2022. Government subsidies and corporate disclosure. Journal of Accounting and Economics, 74(1), p.101480.
• Mudzakar, M.K., Oktaviani, R.R., Rumayar, M.S.F., Kresna, N.A., Yusuf, M. and Aliwahyudin, Y., 2021. The Effect of Debt to Asset Ratio and Return on Investment on Stock Price (Empirical Study on Coal Sub-Sector Mining Companies). Review of International Geographical Education Online, 11(3), pp.1608-1612.
• Nariswari, T.N. and Nugraha, N.M., 2020. Profit growth: impact of net profit margin, gross profit margin and total assests turnover. International Journal of Finance & Banking Studies (2147-4486), 9(4), pp.87-96.
• Patin, J.C., Rahman, M. and Mustafa, M., 2020. Impact of total asset turnover ratios on equity returns: Dynamic panel data analyses. Journal of Accounting, Business and Management (JABM), 27(1), pp.19-29.
• Shevchenko, A., Pagell, M., Lévesque, M. and Johnston, D., 2020. Preventing supplier non-conformance: Extending the agency theory perspective. International journal of operations & production management, 40(3), pp.315-340.
• Turner, L., Weickgenannt, A.B. and Copeland, M.K., 2022. Accounting information systems: controls and processes. John Wiley & Sons.
• Yanto, E., Christy, I. and Cakranegara, P.A., 2021. The influences of return on asset, return on equity, net profit margin, debt equity ratio and current ratio toward stock price. International Journal of Science, Technology & Management, 2(1), pp.300-312.

Online

• Characteristics of financial statements. 2024. Online. Available through: < https://www.universalcpareview.com/ask-joey/what-are-the-fundamental-qualitative-characteristics-of-financial-statements/>