Business Finance And Economics Assignment Sample

Business Finance And Economics Assignment
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Business Finance And Economics Assignment

Introduction of Business Finance And Economics Assignment

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Micro-and macroeconomics impact the competitive environment of an organisation and the role of accounting in decision-making aspects is reflected in this study. Accounting ratios are evaluated of the company XYZ plc for the two years to present their financial performance. The interpretation of management accounting techniques, structure, and terms used within the primary financial statements is discussed here.


2.1. Task One – Business Performance and Competition

The main determinants of the financial performance

The external and internal determinants of business show their efficiency in showcasing their performance in the competitive market. As opined by Ali and AlQuradaghi (2019), the financial determinants in form of external and internal are leverage, capital adequacy, liquidity, business sizes and operational volume. These determinants are controlled by the firm by implementing various strategies and structures. However, the internal determinants such as money and resources, managers and employees, and company culture are controlled and manageable. The external determinants or forces such as economy, politics, and Government policy and the competitors in the business market are not controlled by the organisations (Apollos et al. 2018). This is because these factors are totally influenced by the outer world of business.

Distinguish between the macro-environment and microenvironment factors

The microenvironment refers to the environment that has immediate context within the firm's premises. As per the view of Atif et al. (2019), macro-environment refers to the outside world where the firm influences other working organisations in the business market. The microenvironment factor affects the firm directly or on a regular basis, whereas the macro-environment factors show the opposite terms. In the microenvironment, the business aspects are studied by COSMIC analysis. In the context of the macro environment, PESTLE Analysis is used to discover the information that is happening in the outer business world (Budhwar et al. 2022). These factors or determinants may generate favourable outcomes but at the same time, it creates hindrances in performing the business activities.

The factors that impact on the competitive environment of a firm

The factors are involved such as product features, sellers of the firm, and barriers in the market entrance, availability of location, area and information regarding customer market or product. As stated by Chang et al. (2018), these factors show that the firm has a competitive advantage in the business market. By “cutting costs, improving efficiency, lowering the price and innovating” the old products can make the firm more competitive in nature. These aspects reflect the company's ability to fulfil its customer's requirements by presenting better quality products at reasonable rates. The above-mentioned factors are responsible for creating a competitive advantage inside the firm's premises ((Business, 2022)). It also shows the firm efficiency to tolerate the risks and loss aspects by evaluating its financial aspects in a better way.

2.2. Task Two – The Role of Accounting

Role of Accounting

The main key role of accounting is to provide all the financial and general information to the stakeholders of the company along with its investors, creditors and other responsible persons. As opined by Hertati et al. (2020), financial accounting measures and summarises all the financial and economic events of a firm in an efficient way. It generally holds three key roles that are “record, collect, analyses, and report on financial data”. Mostly the accountants of the firm use the required data from the books and journals of the organizations (Hu and Wang 2019). These collected data are interpreted to get accurate pieces of information related to the expenditure and income.

The need for financial reporting and accounting rules regarding the decision-making aspects

In the decision-making aspects of the firm, the financial reports and rules of accounting are used to gain beneficial returns from the events of the company. As per the author Huang et al. (2018), without porous guidelines and rules or principles, the financial data are not recorded, otherwise, it will give conflicting results. The decision within the organization is taken by the responsible persons who have accurate knowledge related to the financial aspects (Kitchen et al. 2019). For example- if the accountant is not keeping the proper books and records of the daily events then at the end of the month they cannot represent the actual income or expenses.

The connection of accounting with its branches

For accounting purposes, each branch has its own costs and profit control segments. This is because the different department can control the different products and their related costs. As mentioned by Klopotan et al. (2018), combining all the departments can show mix up results that can lead to conflicts. The single owned accounts contain the “inventory, accounts receivable, wages, equipment” as income for the form. The expenses such as “rent and insurance, and petty cash” are recorded in separate statements.

2.3 Task Three – The Major Financial Statements

The main and major financial statements are balance sheets, income statements and cash flow statements. These statements are described below with their elements, layout and what they represent.

Balance Sheet analysis

In the company balance sheet, all the assets, liabilities, shareholders' funds and company loans and external amounts are reflected. As per the view of Leitch et al. (2018), the main purpose of the balance sheet is to analyse the overall performance of the firm within a financial year. The positive value in the balance sheet shows the efficient performance of all the business activities whereas the negative value shows that the company need to look at those factors. The key elements of assets and liabilities show the financial performance of a firm where the firms need to adjust their expenses in terms of revenue to a certain exact value of profit (Moorthy et al. 2020). The value of the assets and liabilities must be equal in balance sheet financial statements.

Income statement analysis

Under this financial statement, the income and expenditure are recorded in separate columns or under different headings. As stated by Nedopil Wang et al. (2022), the net income is ascertained through the income statement analysis. It is also called by its other name which is profit and loss account. The income statement has three important parts that are “Revenues, Expenses, and Profit”. The profit or loss is ascertained by deducting the overall expenses from the revenue of the firm (Rusydiana et al. 2021). The financial policies and strategies are evaluated through these financial statements as it shows that the additional and main business orations imply profit or losses to the firm.

Cash flow statements

The cash inflows and outflows of a firm are recorded in these financial statements. It mainly shows the changes in the balance sheet account and the income that affects the cash and cash equivalents of the firm. It has three broad parts, net income from operations, from investing activities and incomes from financial activities. As per the author Siami-Namin and Namin (2018), the main aim of this financial statement is to provide a clear and accurate picture of the company's cash for an accounting period. It tracks down the liquidity and solvency position of the firm. There are two methods by which cash flow statements are made that are direct and indirect methods. The direct method is basically followed in all kinds of firms.

2.4 Task Four – Financial Ratios

The financial ratios show the quick results in which the profitability, liquidity and solvency position of the firm is ascertained. It is one of the most important financial metrics through which the current position and performance of the firm are ascertained. The company XYZ plc and its market positions are evaluated by asserting the five major financial ratios (Wang et al. 2022). The ratios are, “Operating Profit Margin (OPR), Gross Profit margin (GPR), Current Ratio, Acid Test Ratio and EPS (Earnings per Share)”.

Calculations of ratios

Financial ratio analysis of XYZ Ltd







Operating profit/(Loss)






Operating profit margin (%)

(Operating profit/Sales)*100



Gross profit






Gross profit margin (%)




Current assets



Current liabilities



Current ratio

(Current asstes/Current liabilities)



Current assets






Current liabilities



Acid test ratio

(Current assets-inventory/Current liabilities)



Net income



Total shareholders' equity of XYZ Ltd



Price per share



weight age on total number of shares



Earnings per share

(Net earnings / Total shares outstanding)



Table 1: calculation of ratios

(Source: self-created)

Ratio analysis

From the above table, it can be stated that all the five ratios are evaluated by applying the standard formula. The ratio is evaluated by stating the financial values that are given in the case study. The two-year values show that the ratio is comparable for two years, which shows different results. From the OPR, it can be stated the ratio values are not equal; to the ideal rate. The ideal value stands at more than 15%. The ratio shows 10% in the year 2019 and 1% in 2020. The less value shows that the firm needs to evaluate its revenue to gain more profit. The GPR values are calculated as 26% in 2019 and 14% in 2020. The ideal ratio is valued at 50 to 70%. In this context, the financial position shows negative values through which the firm can incur more losses.

The current and acid test ratio shows the same more value as the ideal ratio. The standard ratio stands at 1:1. The ratios are showing more values. There the firm needs to revaluate its assets and liabilities. The EPS ratio shows more values than the stated ideal ratio. The standard value is written around 80 or higher than 80. From the ratio evaluation, the values are ascertained around 1.25 in 2019 and 0.06 in 2020. Therefore the firm needs to resale its share at a higher rate.

Implications of ratio analysis of the firm XYZ plc

For the firm XYZ plc it can be stated that the owner needs to revalue ll its financial aspects as all the ratios are showing negative balances. This negative form can make the company run into losses. For a long time, the company cannot be able to compete in this competitive market (Economictimes UK, 2022). The major area or phase of XYZ Ltd is that it needs to make changes to adopt sustainable development in the business. It is also considered that the improvement in the financial growth of the business can bring fruitful results in near future. 

2.5 Task Five – Management Accounting

Managerial accounting refers to the short and long term decision of the company that is responsible for enhancing its financial health. It made the operational decision of the firm more effective than others (, 2022). It helps in increasing the operational efficiency of the firm that cam implemented in the long-term strategic development. The insights of the firm can be evaluated by considering each managerial decision.

Managerial accounting in respect of planning and controlling

These processes, planning and controlling refer to the “monitoring, measuring, evaluating and correcting” the actual financial results. These results are compared with the capital planned strategies that are used to form an effective decision. In the context of managerial accounting, the planned aspects are controlled by the highly professional managers in a better way. This makes the outcomes more effective and beneficial for the firm.

Managerial accounting in respect of decision-making

Decision-making aspects are the sole determinant for which the firm operations are started and completed with full efficiency. It decides the total amount of money which is needed to be spent on “when, where and how” aspects (Zhang et al. 2020). The standards budgeted financial or metrics make the amount spent on the required place. This technique implies more positive results compared with the either financial decision-making segment.


Based on the above context it can be stated the application of correct strategies and formulas can bring fruitful returns to the firm. In order to conclude the financial position of the firm, it can be seen that, from the ratio analysis, the results are not favorable for the company. There is a huge difference in the ideal value from the actual values which are computed through the ratios. Therefore the firm XYZ plc needs to allocate popper resources and strategies as per the market requirement or else the nerve result will cover all the beneficial aspects of the firm.


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