Business Finance And Economics Assignment Sample

Behavioral Finance in Investment Decisions
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Behavioral Finance in Investment Decisions

Introduction Of Business Finance And Economics Assignment

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The project is based on Business Finance and Economics, in the study it is going to analyze “The Role of Accounting”. In this part the study focused on the accounting system, how accounting systems can help the society as well as the global market. The next topic was based on “The Major Financial Statements” , in this part the study focused on how a company owns a business with financial statements such as balance sheet, cash flow statement etc. The third analysis is based on “Financial Ratios” which indicate the difference between the financial statements. The last analysis is based on “Management Accounting” which indicates the process of financial analysis, verification, and business interpretation for business administrators to make effective decisions.

Task 1: External and Internal determinants of business

The business performance of an organisation possesses various challenges in its commercial lifespan, which often creates complexities associated with the proper and streamlined functioning of regular business activities. A detailed discussion on the various external, internal, micro and macroeconomic factors for a business organisation is mentioned as follows.

1.1: Discussion on internal and external determinants of business performance

The “internal and external determinants” of business performance are considered to be key takeaways determining the progression of business streams for an organisation. The major internal factors of an organisation can be considered as the employees, management and other operational resources located within the umbrella of an organisation. As per opinions and explanations of Gomez et al. 2018), the impacts of internal determinants are dealt with significantly for an organisation as the perennial scope for generating high profitability is directly associated. Moreover, the external determinants mainly include stakeholders, federal and governmental bodies as well as suppliers of an organisation. The influence and impacts of the external determinants are further considered to highly affect the financial performance of an organisation, thereby leading to either generation of favourable or adverse business prospects. Hence, it is an important consideration for organisations to duly oblige the role of both determinants to ensure prolonged business continuity and harmony.

1.2: Determinants ensuring whether the elements are macro or microeconomic

The majority of elements mentioned above consist of the internal and external determinants of an organisation. As the impacts from internal determinants affect the business performance in a domestic manner, they can be largely classified as micro-economic factors. The micro economic factors are further classified as the adherence of an organisation to comply with the demand and supply of products in the economy. Prado Tuma and Spillane (2019), further expressed and stated that the external stakeholders mainly consist of investors, suppliers and governmental bodies and hence they can be duly considered as macroeconomic factors. As their influence affects the overseas business paradigms of an organisation, it is highly important for an organisation to maintain good business terms to establish market dominance.

1.3: “Factors impacting the competitive environment of a firm”

The factors affecting the “competitive environment of a firm” are further discussed as follows.

Product Features

The first key factor includes the product features, in which the form producing a high mix of products generally gathers a higher dominance in the market. Hence, it is important for organisations to keep a wide range of products available in the market.

Buyer Information

As stated by Holmes (2021), the second key factor includes the availability of buyer information to the organisations based in the market. The determination of seller information can be further achieved by an organisation through conducting various market surveys consisting of conventional and modern approaches like digital exploration.

Information and Availability

The third key factor affecting the competitive environment of a firm involves information and availability. The information and availability feature is most associated with the availability of how products can be sold across various channels in the market.


The fourth key factor affecting the competitive environment includes the location of business for a firm. Macassa et al . (2022), further explained that the location is a key consideration to encourage proper flourishment of business activities in the market.

Task 2. The Role of Accounting

2.1 Role of Accounting in respect to Decision Making in Organization:

Accounting plays a huge role in the global market as well as the finance sector, without accounting a business or company can’t make their financial statement or effective decision making of business. As opined by Bajo, Barbi, Hillier, 2020 accounting creates an effective role in the company, accounting helps to chase the income and expenses of the company. Accounting process helps the organization to maintain the government consent as well as provide the measurable financial information. Accounting can help to measure the business financial statements as well as statutory compliance. It will help to record the payments of the past of any organization or firm. Accounting helps business administrators as well as marketers to make effective decisions about the business. Accounting system helps the government to record all public funds as well as information about taxes and revenue. It will help to conduct the financial year with collective data and information of government taxes and revenue. Accounting has created major policies of the Government that will help the public to record the funds and business economy. Accounting provides basic information to shareholders or stockholders in the share market. It can help to upgrade the old financial system to the new financial system in the global economy. It is the key to measure loss or profit in the business or any firm.

2.2 Importance of Accounting in Organization:

Accounting has a huge impact on organization, such as the accounting process creating a budget or forecast planning of the business, by which the firm is able to make their income and expenses list. In which it is easier for the firm to measure the income and expenditure for the whole year.

The process of accounting helps the organization to get a loan from any bank or financial institution, in which the company needs to show the financial statement of their business to get the loan. Without a proper accounting system, the company or organization is not able to get the loan from the bank. Different kinds of books of records such as balance sheets, tax paid need to be maintained, then the bank or any financial institute looks over in detail in order to provide the loan to the firm.

The business or any firm needs to record all the transactions and payment they have made to run the business unevenly. The record of transactions helps the business to communicate to end users.

Accounting systems help the organization to make effective decision making for the organization. For making any decision the organization needs a financial statement, in which accounting helps them to make the financial statement of the company.

Before investing in the share market of any firm, it will be necessary to check their financial statements of the last 5 to 10 years. Accounting process helps the organization to record all their past financial data. This process helps the organization to improve their payment cycle as well as transparency in the firm.

Task 3: The Major Financial Statements

A financial statement of the organization helps to record the transaction by which the company measures their financial performance and conveys the business smoothly. It is audited by the accountant and auditors of the firm.

The layout and terms consisting within the major financial statements are: “i) balance sheets, ii) income statements, iii) cash flow statements”

“i) The Balance Sheets” – “ Balance sheet” is a part of a financial statement which indicates a firm’s asset and liability structure in a strategic way. The balance sheet is used to evaluate the business in a financial way. Hence an analysis of the “balance sheet shows the book value” of the firm. Total equity and liabilities of the business are £m 1115 and £m 1290 in 2019 and 2020. “Trade payable” is near £m 165 and £m 200 in both “financial years of XYZ Plc”. Total asset and liability calculated by the balance sheet to evaluate the “total revenue of the firm”. The organization or the company is able to check the net asset and net liability of the firm that will help to create a transparent view of financial position

  1. ii) “Income Statements” - An income statement has a huge impact on an organization as it is the monitor of financial activities. It indicates the profit and loss forecast of the business as well as measuring the total revenue. “The total revenue” of the firm is £m 2500 and £m 2750 in both the year 2019 and 2020. The gross profit and operating profit are measured by the income statement. The gross profit of the firm in 2019 and 2020 was £m 650 and £m 375. By income statement the firm is able to check their profitability rate of a time period.

iii) “Cash Flow Statements”- Cash flow indicates the liquidity flow in financial statements. In financial accounting the statement of cash flow shows the changes in the balance sheet that affect the cash equivalent as well as income of the cash. It helps to provide the information about external sources of investment of the company. It plays a huge role in accounting to look out the financial activities in the organization. In a cash flow system, the accountants are able to evaluate the data of cash inflow and cash outflow, which can help the business to run subsequently. It is a most important statement that has a compact of all data in one statement. (Zhao and Jing, 2020)

Task 4: Financial Ratios

4.1 “Operating Profit Margin Ratio’:

“Operating profit margin ratio”


2019 (£m)

2020 (£m)

Operating profit



Net sale






Table 1: Operating Profit Margin Ratio

(Source: Self-created)


An “operating profit ratio” has been calculated by operating profit divided by net sales of the firm. “Operating profit margin ratio” indicates the profitability rate of the firm. It is important for the firm to be able to chase the operating profit of the firm. After evaluation, the gross profit ratio of 2019 and 2020 is £m 12.97 and £m 1.47

4.2 “Gross Profit Margin Ratio”:

“ Gross profit margin”


2019 (£m)

2020 (£m)

Gross Profit



Net Sale



Gross Profit Margin



Table 2: Gross Profit Margin Ratio

(Source: Self-created)


‘Gross profit margin ratio” indicates a company's financial health by evaluating the left-over amount after selling any product after subtracting cost of goods sold. It is beneficial for firms to check the percentage rate of selling the products. A good profit margin ratio indicates the company is financially healthy and that they can reinvest in business as well as in funds. From the above table, the calculation of the Gross Profit Margin ratio of 2019 and 2020 is £m 0.35 and £m 0.16.

4.3 Current Ratio:

“Current ratio”


2019 (£m)

2020 (£m)

Current Asset



Current liabilities






Table 3: Current Ratio

(Source: Self-created)


Current ratio is a ratio of liquid assets of the company, which indicate the ability to pay the “short-term debt” or which is due for a year or more. It indicates the stakeholder to maximize their current asset as well as current liabilities. Current liabilities and current assets are essential for any company, by which the firm is able to chase the all-financial records of the company. From the upward table, the calculation of the Current Ratio of 2019 and 2020 is £m 3.13 and £m 2.34.

4.4 “Acid Test Ratio”:

Acid test ratio


2019 (£m)

2020 (£m)

Current Asset






Current liabilities






Table 4: Acid test Ratio

(Source: Self-created)


“Acid test ratio” indicates the company’s quick asset such as cash and accounts receivables for current liabilities. It is the most important ratio in financial statements as it determines the short-term liability of the firm. The inventory of the firm in 2019 is £m 350 and in 2020 £m 410. The acid test ratio of the firm in 2019 £m 1.29 and in 2020 £m 0.95 by which the study can verify the financial position of the company. (Khoshhal, 2018)

4.5 Earnings per Share Ratio

Earnings per share


2019 (£m)

2020 (£m)

Total earning



Outstanding shares






Table 5: Earning per share Ratio

(Source: Self-created)


Earnings per share ratio indicate the firm’s total earning in the certain time period. By evaluating this ratio, the company is able to track the outstanding shares of their company as well as net profit of the company. Total earnings of the company in 2019 is £m 2090 and in 2020 £m 2360, by which the study can evaluate the structure of net earnings. The Earnings per share of the company in 2019 is £m 5.23 and in 2020 £m 5.90.

Task 5: “Management Accounting in terms of planning and Decision Making”

5.1 “Management Accounting”:

Management Accounting is a process of verifying financial data, evaluation of numerical value, analyzing the financial system, planning for upcoming days of business in finance, detailed explanation of finance in business, communication and relation with boards of directors in the firm to pursue the main objective of the firm. Management defines how the company or organization can manage all the financial data. It is a process to chase all financial sources and non-financial sources as well as financial activities in business.

5.2 Planning Through Management Accounting:

From a management accounting aspect, planning indicates the determination of the future steps of the business. It will help the business to set a goal as well as a fixed objective. Planning is much needed for businesses to grow financially in the global market. Without planning a business cannot grow much in the market, planning helps the organization to create the steps of action as well as how the business can meet their goal in future days. Management accounting supports the planning process of XYZ Plc.

5.3 Controls through Management Accounting:

Control is a part of management accounting which indicates the process of monitoring the business, especially the finance sector, can measure the financial data and evaluate the goals and objectives of the business. As per the narrator of Kang 2021, January, the managers, accountants, auditors, controlled the business internal risk as well the financial data of the business. Control is acquisition with the use of review and feedback of the company. There are three types of control: output control, control of clan, behavioral control. (Rusydiana et al . 2021)

5.4 “Decision Making through Management Accounting”

In management accounting, “decision making” plays a vital role in the financial sector or any business. Decision making is important for the business, without decision making a business cannot grow properly. As cited by Chang et al. 2020 an effective decision making can be the best decision if that makes the most revenue for the firm. The Management accounting has been used in “long term decision making and short-term decision making” of the business. In which it helps the managers to take the decision efficiently. A decision making is connected to the financial health of the business. (Kitchen et al . 2019)


From the above analysis it has been concluded that management accounting is very beneficial for XYZ Plc. It will help the company to improve the financial growth. The ratio analysis method is used to define the financial ability of XYZ Plc as well as to indicate the profitability rate, current asset, operating profit and earning rate of the company. The financial structure of the business is measured by the managers of the company. The financial statement of the XYZ Plc defined the business performance as well as potential benefits of the organization.



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