Advanced Finance Report for Decision Makers

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Sample Report
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Advanced Finance for
Decision Makers

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TABLE OF CONTENTS
Introduction......................................................................................................................................4
Section 1: role of financial information and analysis ......................................................................4
Factors that assist in process of decision making in business......................................................4
Significance of financial factors ..................................................................................................4
Characteristics and impact of business risks................................................................................4
Financial priorities while decision making process ....................................................................5
Section 2: Financial Statements.......................................................................................................5
Comparison of accrual and actual cash flow approaches and its implication in decision making
of Tesco and Sainsbury...............................................................................................................5
Structure and content of final accounts........................................................................................5
Interpretation of financial information in financial statements....................................................6
Differentiate between financial decisions regarding capital and revenue expenditure................6
Calculation of financial ratios of Sainsbury for decision making................................................6
Key requirements of published accounts of a public limited company.......................................8
Section 3: Accountability for Financial Reporting..........................................................................8
Differentiation between governance, business ethics and accounting ethics for controls on
business accountability ................................................................................................................8
Assessment of the role of finance director as a guardian of business ethics ...............................8
Analysis of key concepts and principles of corporate governance that will affect decision of
business........................................................................................................................................9
Examination of key national and international financial reporting standards which are relevant
for the decisions of business ........................................................................................................9
Section 4: sources of finance ...........................................................................................................9
Explanation of difference between long-term financing needs and working capital needs for
business........................................................................................................................................9
Comparison of long term and short term financial sources ........................................................9

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Importance of access to working capital for the continuation of business ................................10
Techniques for cash flow management and impact of cash flow on decision making process 10
Evaluation of methods for making decision of capital investment............................................11
Explanation of benefits and drawbacks of off-balance sheet financing ....................................12
Section 5: Ownership Structures and Financial Performance........................................................13
Analysis of financial implication of different ownership structures of business.......................13
Analysis regulatory, legal environment and corporate governance of different ownership
structures....................................................................................................................................13
Comparison of stakeholders interest in decision making process .............................................13
Significance of Return on capital employed..............................................................................14
Significance of EPS as a measure of business performance......................................................14
Conclusion .....................................................................................................................................14
References......................................................................................................................................16

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Index of Tables
Table 1: Financial ratios of Sainsbury .............................................................................................7
Table 2: Information of proposed project for capital investment ..................................................12
Table 3: Statement showing cumulative inflow.............................................................................12
Table 4: ARR of project for capital investment.............................................................................13
Table 5: NPV of project for capital investment.............................................................................13
Table 6: ROCE of Sainsbury of previous four years .....................................................................15
Table 7: EPS of Sainsbury of previous four years.........................................................................15

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INTRODUCTION
Finance is crucial aspect for success of business. Organizations are required to manage
their financial resources in an appropriate manner to achieve their goals and objectives. For this
aspect, they are required to understand relationship between risk assessment, financial
information and business decision making (Sandford, 2014). Present project is focused on
description of this financial aspect along with suitable practical examples. Report will include
explanation of financial analysis and its significance in procedure of decision making.
Sample Report on Advanced Finance for Decision
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SECTION 1: ROLE OF FINANCIAL INFORMATION AND ANALYSIS
Factors that assist in process of decision making in business
Decision making is the complex procedure for all business organizations because it is
affected by both financial and non-financial factors. Commercial entities are required to make
justified decision by considering entire situation and criteria (Mandelbrot, 2013). Further, it
should be on individual basis decision makers should also include people who will be affected by
the decision. In addition to this, it should be supported by approaches like financial tools,
theories and techniques. Selected option by business should be feasible to implement and it
should be in accordance with objectives of business. On considering these factors, management
can make better decisions for their organization to get successful.
Significance of financial factors
A decision is said to be appropriate if it is financially feasible and beneficial for the
business. Organization should have sufficient financial source to generate funds for operational
activities. In addition to this, the firm is required to assure that, decision will make position
impact on the revenue and profitability of business (Miner, 2012). In situation, where
organization is not able to manage financial factors in an effective manner then, risk for business
will be enhanced. There is Significance of financial factors decision making for long term period
because it possesses high risk.

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Characteristics and impact of business risks
Business risk can be defined as a possibility in which organization will not be able to earn
their desired profit or they will experience loss. It is influenced by various factors such as
competition, financial position, government regulation, costing structure etc (Melnikov, 2011). It
is uncertain and fluctuating in nature due to which it has direct impact on decision making
process of business. Some business risks are controllable to some extent while some are totally
unpredictable. Business risk is related to expectation of owner as it arises from the nature,
operation and conditions of business. Management of organization is required to consider these
factors in the process of decision making to reduce uncertainty in future operations.
Financial priorities while decision making process
In order to manage business risks in a systematic way, it is important for management to
set their financial priorities. For this aspect, they are required to prepare budgets to classify their
expenditures on basis of its significance. Initially business should focus on essential expenditures
by paying to suppliers. Further, they should concentrate on needs and expectations of employees
to motivate to provide better performance (Ziemba and Vickson, 2014). Once creditors are paid,
next financial priority of business should be payment to employees for their work. Remaining
profit should be distributed in two parts, one part for owner and second part for retained earnings
for future operational activities.
SECTION 2: FINANCIAL STATEMENTS
Comparison of accrual and actual cash flow approaches and its implication in decision making of
Tesco and Sainsbury
In accordance with accrual cash flow, transactions are recorded on the basis of income
and expenditure incurred in the accounting year. On the other hand, in cash flow approach
transactions are recorded only if it is in cash. Comparatively, accrual accounting approach shows
more accurate financial position in comparison to cash flow system (Geltner and et.al., 2013).

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Due to this aspect, organizations is considering accrual concept for making decisions. Accrual
transactions show impact on profitability and viability of project while cash system shows
impact of inflow and outflow of cash through decision taken by organization.
Structure and content of final accounts
1. Balance sheet- This statement can be prepared in vertical or in the horizontal form. This
statement is bifurcated in two parts i.e. assets and liabilities. It shows financial position of
business on particular accounting year (Hausman, 2012). By considering this
information, business can make long term decision such as expansion or change in
operational activities for high market share.
2. Income statement- This statement is prepared in vertical form to show income and
expenditure of accounting year to determine profitability of business. This statement is
prepared by considering accrual approach. With this information, business can make
decision regarding revenue transactions to enhance their sales and profitability.
3. Application of funds statement- This statement is prepared by business to represent
allocation of financial resources on operational activities of business (Shiller, 2013). By
considering the information, organization can restructure their application of funds in
order to maximize their output.
Interpretation of financial information in financial statements
1. Balance sheet- In accordance with the position statement of Sainsbury, improvement in
financial performance can be noticed as value of company has been increased. On the
other hand, reduction in assets of Tesco can be noticed (Annual report of Sainsbury,
2015). This aspect represents that, financial position of Sainsbury is comparatively better
than Tesco.
2. Income statement- This statement shows profitability of business in a particular
accounting year. In income statement of both companies there is positive change but

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increase in Sainsbury is higher (Peters, 2011). It is because; company is able to manage
their income and expenditure in a better way.
Differentiate between financial decisions regarding capital and revenue expenditure
Capital expenditure is made for long term period and it requires huge financial resources.
On the other hand, revenue expenditures are made for short term period and it does not require
excessive funding. Due to this aspect, decisions for capital expenditures are made after
appropriate financial analysis in order to reduce risk. Further, decision for revenue expenses is
made by considering current business situation.
Calculation of financial ratios of Sainsbury for decision making
Table 1: Financial ratios of Sainsbury
Ratios Formula 2014 2013
Profitability ratios
Gross profit 1387 1277
Operating profit 1009 882
Net Sales 22294 21102
Gross Profit Ratio (Gross Profit/ Net Sales) *100 6.22% 6.05%
Operating Profit Ratio (Operating Profit/ Net Sales) *100 4.52% 4.18%
Liquidity ratios
Current Assets 4362 1901

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Current Liabilities 2396 1201
Closing Stock 1005 987
Current Ratio Current Assets / current Liabilities 1.82 1.58
Quick Ratio (Cu. Assets - Cl. Stock)/Cu.
Liabilities
1.4 0.76
Gearing ratios
Debt 2384 2162
Equity 6005 5838
Debt Equity Ratio Debt/ Equity 0.39 0.37
Investment Ratios
Price earnings Ratio –
Adjusted*
Market Value per share/ EPS 9.6 11.8
In accordance with the financial ratios of Sainsbury it can be noticed that, company had
made improvement in their financial performance as there is positive change in ratios. In
accordance with the investment ratios, company should focus on dividend policy of shareholders
to provide them with better return (Financial ratio and Analysis, 2013). Further, the firm can
make increase in debt portion in order to generate funds for operational activities. No

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modification is required to be made in working capital structure because it is in accordance with
the ideal ratio.
Key requirements of published accounts of a public limited company
It is mandatory for public limited companies to publish their financial accounts along
with their financial statements. With these accounts, stakeholders are able to interpret financial
position of business to make viable decisions. For example, shareholders can assess return on
investment to make decision regarding holding or divesting of shares. Creditors and lenders can
assess their financial position to assure that, company is in position to repay financial obligation
(Bangake and Eggoh, 2011). With this information, employees can explore future opportunities
that will be available to them by working with entity. Further, government can assure that,
company had accomplished their ethical responsibilities in an appropriate manner.
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SECTION 3: ACCOUNTABILITY FOR FINANCIAL REPORTING
Differentiation between governance, business ethics and accounting ethics for controls on
business accountability
Governance
It includes set of regulations and legislation of government which influence business to
perform their activities in a legal manner. By considering governance, it is essential for
organization to involve government in their decision making process.
Business ethics
Business ethics are set of values and rules that involve responsibility of organization
related to society, nation, environment and human being in their business policies. It helps firm
to measure the comparison between right or wrong and good or evil (Flannery and Hankins,
2013).
Accounting ethics
It includes a range of moral value and judgment criteria which influence the organization
maintain their financial and accountable practices in an ethical manner.
Assessment of the role of finance director as a guardian of business ethics
As per the ethical concept, it is essential for financial director to provide accurate,
competent and timely information to their management and stakeholders related to sales,
expenditure, revenue, profitability and overall margin (Day, 2005). With this, he or she needs to
maintain financial document in a confidential manner as per the data protection law of
government. Selling and buying important information related to business for enhancing the
value of stock is a criminal offense is required to be eliminated by financial director of company.

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Analysis of key concepts and principles of corporate governance that will affect decision of
business
Organizations are required to consider ethical norms at the time of decision making by
considering the interest of stakeholders. Management of organization cannot make decisions
which will contradict legislator provisions or ethical aspects (Coles, Lemmon and Meschke,
2012). For example, pricing policy should be set in accordance with quality and quantity of
product. Further, organization should not sacrifice quality for higher profitability.
Examination of key national and international financial reporting standards which are relevant
for the decisions of business
Accounting and financial reporting standards are essential to be complied with
commercial entities while making decisions for operations in the business.. Where company is
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operating in more than one country is required to follow international accounting standards.
Organizations are required to prepare financial statements by considering guidelines given in
these standards in order to present reliable and accurate information.
SECTION 4: SOURCES OF FINANCE
Explanation of difference between long-term financing needs and working capital needs for
business
Long term financing needs arise for the capital project such as expansion or acquisition.
On the other hand, working capital need arises for day to day activities of business. For long-
term financing needs, high funds are required by business while working capital needs can be
satisfied with lesser funds (Shiller, 2013). Long term financial needs are generally satisfied with
equity or debt finance because internal sources cannot be increased in accordance with its
requirements. However, internal financial sources are able to satisfy working capital needs of
business. Further, financial charges for working capital needs are higher in comparison to long-
term financing needs.
Comparison of long term and short term financial sources
Basis of comparison Long term finance Working capital finance
Requirement For long term projects, such as launch
of new project or acquisition of target
company.
For operational activities of
business such as payment to
suppliers or for making short
term investment.
Availability These sources are provided after
completion of several formalities. In
addition to this, organization should
have good financial position to
These funds are easily
available to companies without
any complex requirements.

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generate these funds (Hausman,
2012).
Security For availability of funds from these
sources commercial entity is required
to provide security.
For these sources, organization
is not required to provide
security.
Importance of access to working capital for the continuation of business
Cash is blood of business thus it is required for all operational activities. Organization
needs to generate sufficient funds for daily activities else they will face situation of deficiency in
liquidity. Appropriate working capital also assists in strengthening solvency of business by
providing them with uninterrupted flow of production (Day, 2005). Organization is in financial
crisis in situation of adverse economic environment. Along with this, they can take benefit of
available opportunities for higher profitability.
Techniques for cash flow management and impact of cash flow on decision making process
Cash flow management can be defined as systematic procedure used to balance inflow
and outflow of cash & cash equivalents. In order to manage cash, organization can maximize the
use of projected cash surpluses. Further, management can prioritize their expenditure in optimum
utilization of available resources. Cash flow of business can also be managed by appropriate
working capital management policies (Peters, 2011). For example, companies should select
suppliers with high credit policies and can speed up the process of collection. Entities have also
option to liquidate assets which are not providing economic benefit to them. With the
applicability of above described techniques, management of businesses will be able to manage
inflow and outflow of cash in an effective manner.

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Evaluation of methods for making decision of capital investment
For capital investment, high funds are required by businesses due to which financial
managers are required to assure that; proposed project is beneficial for business. For this aspect
they can use following methods-
Payback period
With this method, organization can determine duration in which amount of initial
investment will be recovered.
Net present value
This is the most appropriate method to evaluate financial viability of capital investment
as it considers all elements of project (Coles, Lemmon and Meschke, 2012). Organization is
recommended to invest in project with positive inflow.
Accounting rate of return
Explanation of benefits and drawbacks of off-balance sheet financing
Off-balance sheet financing is beneficial for the business as it is neither an asset nor a
liability. In addition to this, it will also not affect borrowing capacity and reported numbers.
However, this financing enhances manipulation in business because shareholders do not have
appropriate information regarding debt of the company (Hildreth, 2004). There are also rebuttal
claim in GAAP standards, but a more ethical approach shows that, there are other available
choices that do not mislead.

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SECTION 5: OWNERSHIP STRUCTURES AND FINANCIAL
PERFORMANCE
Analysis of financial implication of different ownership structures of business
1. Sole proprietorship- Such businesses are owned by single person and they are whole and
sole responsible for entire activities. They are personally liable for debts, judicial
judgments and obligations of business.
2. Partnership- In this structure, financial obligation is distributed between partners of the
business (Theeke and Mitchell, 2008). However, liability of partner will be unlimited
towards stakeholders of the organization.
3. Corporate entity- Company is an artificial person thus it has separate existence from their
members. Due to this aspect, obligation of members is limited to the amount payable for
capital contribution.
Analysis regulatory, legal environment and corporate governance of different ownership
structures
Sole proprietors do not have legal obligations due to less responsibility towards
stakeholders. However, they are obliged to operate in fair manner by considering legislator
provisions. Individuals operating in partnership firms are required to operate in accordance with
their partnership deed (Shahwan, 2008). Further, they are required to comply with provisions of
partnership law. Comparatively, corporate entities have high responsibilities due to mandatory
corporate governance.
Comparison of stakeholders interest in decision making process
Both managers and owners require growth of business in order to achieve their aims and
Management of entity is focused on the growth and success of business while owners are
interested in profitability (Lampe and Hofmann, 2013). Manager aims to enhance wealth of the

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organization by enhancing its retaining earnings and value. On the other hand, owner of the
business aims in enhancing their return on capital investment for maximum benefit.
Significance of Return on capital employed
Return on capital employed shows value earned by business through the amount of
capital investment. It is vital measure for the evaluation of performance of business. Higher
ROCE represents optimum utilization of capital (Brooks and et. al. 2012). In accordance with the
accounting terms, ROCE should be higher than cost of capital of the company. Significance of
ROCE can be understood through following practical example-
Table 2: ROCE of Sainsbury of previous four years
Year 2011 2012 2013 2014
ROCE (in %) 10.1 9.5 9.2 10.3
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+/- (in %) - -0.6 -0.3 1.1
In accordance with the ROCE of Sainsbury it can be noticed that, there are not high
fluctuations. In last year, there is increase of 1.1% in ROCE. This aspect shows that, company is
improving their efficiency and they are able to earn high profits.
Significance of EPS as a measure of business performance
EPS shows return provided by company on each share to the shareholders. Higher EPS
shows high profitability (Khamees, Al-Fayoumi and Al-Thuneibat, 2010). EPS of Sainsbury of
previous years is as follows-
Table 3: EPS of Sainsbury of previous four years
Year 2011 2012 2013 2014
EPS Reported 33.8 31.5 31.5 36.9
+/- - -2.3 0 5.4
According to the EPS of Sainsbury it can be said that, there is continuous fluctuation in
amount of earning per share however, it is continuously increasing. This aspect indicates that,
organization is able to provide good return to their stakeholders as return on investment made by
them.
CONCLUSION
In accordance with present report, it can be concluded that, finance is crucial aspect for
business because it directly affects its profitability and opportunities of the growth.
Organizations are required to manage these elements in a proper manner to enhance value of

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business. For this purpose, they are required to use appropriate financial tools and techniques. In
addition to this, the company should consider all the vital factors prior to making decision for
business.
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REFERENCES
Books and journals
Bangake, C. and Eggoh, J. C., 2011. Further evidence on finance-growth causality: A panel data
analysis. Economic Systems. 35(2). pp.176-188.
Coles, J. L., Lemmon, M. L. and Meschke, J. F., 2012. Structural models and endogeneity in
corporate finance: The link between managerial ownership and corporate performance.
Journal of Financial Economics. 103(1). pp.149-168.
Day, A., 2005. Mastering Financial Mathematics with Excel: A Practical Guide for Business
Calculations. Financial Times/Prentice Hall.
Flannery, M. J. and Hankins, K. W., 2013. Estimating dynamic panel models in corporate
finance. Journal of Corporate Finance. 19. pp.1-19.
Geltner, D. and et.al., 2013). Commercial real estate analysis and investments.
Hausman, J. A., 2012. Contingent valuation: A critical assessment. Elsevier.
Hildreth, W. B., 2004. Financial Management Theory In The Public Sector. Greenwood
Publishing Group Managing Finance and Resources in Education, 2000. SAGE.
Khamees, A. B., Al-Fayoumi, N. and Al-Thuneibat, A. A., 2010.Capital budgeting practices in
the Jordanian industrial corporations. International Journal of Commerce and
Management.20(1).pp.49–63.
Lampe, K. and Hofmann, E., 2013. Financial statement analysis of logistics service providers:
ways of enhancing performance. International Journal of Physical Distribution &
Logistics Management. 43(4). pp.321-342.
Mandelbrot, B. B., 2013. Fractals and Scaling in Finance: Discontinuity, Concentration, Risk.
Selecta Volume E. Springer Science & Business Media.
Melnikov, A., 2011. Risk analysis in finance and insurance. CRC Press.

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Miner, G., 2012. Practical text mining and statistical analysis for non-structured text data
applications. Academic Press.
Peters, J., 2011. The rise of finance and the decline of organised labour in the advanced capitalist
countries. New Political Economy. 16(1). pp.73-99.
Sandford, C. T., 2014. Economics of public finance: an economic analysis of government
expenditure and revenue in the United Kingdom. Elsevier.
Shahwan, Y., 2008. Qualitative characteristics of financial reporting: a historical perspective.
Journal of Applied Accounting Research. 9(3). pp.192 – 202.
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