Business Finance And Economics Assignment Sample

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Introduction Of Business Finance And Economics

Task 1

Evaluation of two major branches of Economics

In the marketplaces it allows people to interact between buyers and sellers to meet the demand of exchange products and services. As observed by Penn (2019), the supply and demand for these commodities and services, the pricing of goods and inputs, the development of market structures, and the efficiency and welfare effects of various market outcomes are all topics covered in micro economics. On the other hand, the idea of scarcity is fundamental to understanding economic behavior in microeconomics (Nicolescu et al. 2022). Resources are scarce, therefore people and businesses must choose a process to divide them up among conflicting uses. The study of microeconomics focuses on decision-making approaches and the culture and processes for interacting with mature and business environments. It also looks into the effects of governmental policies on market behavior and results, such as taxes and regulations.

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The general health of a nation's economy is the subject of macroeconomics, a branch of economics. Instead of concentrating on specific actors within the economy, it focuses on the overall behavior and decision-making patterns of the economy. Macroeconomics analyzes the overall health of an economy by looking at important economic indicators like gross domestic product (GDP), inflation, unemployment, and trade balance. As per the suggestions of Prasetyo (2019), understanding the economic functions and creating policies that can enhance economic development, stability, and welfare are considered the main objectives of macroeconomics. Moreover, examples of macroeconomic policies contain monetary policy which regulates interest rates, and money supply and fiscal policy, which controls government spending and taxes, are. International commerce and finance, including exchange rates and the balance of payments, are also studied by macroeconomics. Hence, it offers a framework for comprehending and managing problems like inflation, unemployment, and economic growth, macro economics is a crucial topic of study.

Evaluation of the impact on the competitive environment of an organization

Following the above discussion both of the accounting branches have played an influential role to increase the business operation of an organization along with increased profitability. As per the suggestions of Xiao and Su (2022), macroeconomic analysis is considered an effective formulation strategy that justified sorted business policy and helps to gain in-depth knowledge relating to the industrialization policy. On the other hand, it helps business organizations through the formulation of economic policy and development strategy that maintains the balance payment and sorted transaction policy in an organization. Moreover, economic planning allows sustained growth and the creation of effective plans that supply impetus to business activities.

Apart from that, macroeconomics also recreated an influence on potential demand and traced the changed policy in the business environment. However, change policy in a business must need to be considered hence, macroeconomics helps to trace multiple complexities for changing governmental rules and regulations. As per the suggestions of Barra and Ruggiero (2021), macroeconomics strains to know about the manners and happening of crashes and recessions and their importance on business activity. This analysis is considered another influential operation of business activity to face crashes and recessions so that negative impact could be minimized.

Microeconomics also played another influential role to support an organization to get benefits and decision-making approaches for engaging much more consumers with specific attention and paid-off decisions for the improvement of the business. As per the suggestions of Chinoracky et al. (2021), microeconomics is an essential chapter of economic field study that is used in the case of making decisions and scarce resources to understand the nature and behavior of the individual unit. The practice of Microeconomics allowed an organization to enhance productivity by following different business principles. On the other hand, Woetzel et al. (2020), proclaimed that the supply chain might be considered as one of the influential terms that increased the demand of consumers along with the potential intention for increased productivity in the organizational culture. Slightly focused on the pricing policy it assisted to provide an optimum production decision ability that also affects the profit of the organizations.

Task 2

Explanation of accounting convention

It's crucial to follow specific accounting norms to provide accurate financial accounts. These conventions are a set of standards and regulations that specify how financial transactions must be recorded and disclosed in the financial statements of a corporation. The conservatism tenet is one significant convention. Alsharari and Al-Shboul (2019), suggested that, according to this convention, financial statements must be prepared with caution and conservatism to prevent overstating assets or revenue and to make sure that prospective losses are taken into account. As a result, businesses should estimate the worth of their assets conservatively and account for possible losses as soon as they arise. The consistency concept is another significant norm.

Financial accounting also emphasizes the importance of the materiality principle. According to this practice, financial statements must include any information that might have an impact on the choices made by their users. As opined by Blouin and Robinson (2020), the significance of an event determines its materiality, which is dependent on both quantitative and qualitative factors. The final requirement of the full disclosure principle is considered that financial statements contain all information required for consumers to make knowledgeable decisions about the organization. This comprises details regarding the company's accounting procedures, noteworthy occasions, and other pertinent data.

Role of accounting convention in preparation of three major financial statements

Three major financial statements are considered income statements, balance sheets and cash flow statements. All of the instruments played an influential role to justify the financial stability of an organization. This section has demonstrated the role of accounting convention in the preparation of this financial statement.

The preparation of an income statement depends heavily on accounting practices. An income statement is a type of financial statement that gives an overview of a company's earnings for a given period, including profits and losses. At the time of creating an income statement, the principles of conservatism and consistency are particularly crucial. The conservatism convention mandates that accountants disclose financial data with caution and prudence. Almagtome et al. (2020), have revealed that this method helps to avoid overstating assets and understating liabilities, resulting in a more accurate income statement. Most organizations are required to use the same accounting principles and procedures from one period to the next under the consistency convention, which makes it simpler to compare financial data over time. This makes it possible for investors and other stakeholders to make informed decisions hence, the income statement will always present a clear and accurate picture of the company's financial performance.

Accounting conventions are a set of rules and guidelines that control how financial statements, including the balance sheet, should be prepared. The assets, liabilities, and equity of the business are shown on the balance sheet, which is a financial statement. Zhang et al. (2021), have stated that accounting standards play a crucial part in the production of the balance sheet by ensuring that the financial data is precise, dependable, and consistent. Similar to this, the convention of conservatism calls on businesses to exercise caution when disclosing financial data, particularly when estimating losses and liabilities. This makes it less likely that assets will be overstated and liabilities will be understated, ensuring that the balance sheet paints a true and accurate picture of the company's financial situation. In conclusion, accounting norms are essential to the creation of the balance sheet since they guarantee the veracity and correctness of financial data.

The creation of cash flow statements depends heavily on accounting practices. The accounting profession is guided by these conventions, which are accepted standards while recording and disclosing financial transactions. The norms in the context of cash flow statements aid in ensuring that cash flows are reported in a uniform and comparable manner across various periods and businesses. As per the suggestion of Mosteanu and Faccia (2020), the agreements also offer criteria for classifying cash inflows and outflows into operating, investing, and financing activities. The preparation of cash flow statements would be more arbitrary, less comparable, and less trustworthy for making decisions without the use of accounting principles. To ensure the correctness, dependability, and comparability of financial accounts, particularly statements of cash flow, accounting rules must be used.

Task 3

Operating Profit Margin Formula Ratio
Year 2019 2020 2019 2020
Operating Profit 240 35 (Operating Profit/Revenue (Sales) 0.10 0.01
Revenue (Sales) 2500 2,750
Inventory days Formula Ratio
Year 2019 2020 2019 2020
Sales 2500 2,750 (Sales/Average inventory) 7.14 6.71
Average inventory 350 410
Payable period Formula Ratio
Year 2019 2020 2019 2020
Trade payable 165 200 (Trade payable/cost of sales)*365 days 0.09 0.08
Cost of sales 1850 2,375
Receivable period Formula Ratio
Year 2019 2020 2019 2020
Sales 2500 2,750 (Purchase/Average account payable ) 10.42 9.82
Account receivable 240 280
Acid test Ratio Formula Ratio
Year 2019 2020 2019 2020
Current Assets 595 690 (Current Assets-Inventory)/Current Liabilities 1.29 0.95
Current Liabilities 190 295
Inventory 350 410
Earnings per share Formula Ratio
Year 2019 2020 2019 2020
Sales 2500 2,750 (Sales/issued share) 6.25 6.88
share issues 400 400

Table 1: Ratio analysis for XYZ plc

(Source: Self-developed)

The above table has demonstrated an in-depth analysis of the financial stability of XYZ plc. Considering the annual balance sheet and profit and loss account it has justified performance stability and ability in both of the years. This financial ratio analysis of the company has provided an in-depth valuable insight into profitability, efficiency and liquidity ratios. As per the suggestions of Husna and Satria (2019), following the importance of ratio analysis, it can be justified that miniaturization of the accounting statements and looking over the financial health of the organization is a must to engage a lot of stakeholders to maintain a strong cash flow operation. However, internal and external stakeholders both are quite important for the company hence, it enables multiple opportunities to enhance the business operations and examine the ability of the company to meet short-term obligations through available assets in the company.

Considering the financial observation and provided data set it can conclude that the company is much more able to pay off its current liability in the organizational culture. The operating profit margin ratio in an organization helps to measure the retained profit after deducting variable expenses incurred in production. In 2019 it was 0.10 and in 2020 it was 0.01 hence, it can state that the company has not earned much more profit than the revenue.

Inventory turnover days help this organization to get an idea about justified smart decisions related to manufacturing, marketing and purchasing of different business derivatives that are quite necessary for a running organization. However, 5 to 10 are considered the best inventories for an organization. Similar to this it shows 7 in 2019 and 6 in 2020. Following the inventories period, it can proclaim that the company can manage needed business operations to gain profit.

In a running business organization, it is necessary to justify the measurement of an average number of business payable days that control cash management and be aware of some of the limitations that are connected with the organization. Hence, following the given financial information it can conclude that the payable period in 2019 was 0.09 and in 2020 it was 0.08. This data report helps to understand that payment processes to its creditor are not so good hence, it does not contain much more than enough cash or cash equivalent to meet certain credit.

The receivable period in an organization effectively allowed us to understand financial stability and liquidity. In the case of the preparation of invoices, receivable periods are considered one of the influential trends that must be confirmed. Following the given data set and financial data it has calculated a receivable period of 10 in 2019 and 9 in 2020. This calculation will effectively allow for the improvement of cash position and increase cash control operations over the working capital of an organization. It also assisted to determine the payment cycle to its creditors.

Acid test ratios are considered another effective comparison within the company that enables one to understand the context that comprises short-term and long-term liabilities such as short-term debt and current asset finalization. In 2019 acid test ratio of XYZ was 1.29 while in 2020 it was 0.95. Following the acid test report, it can conclude that less than 1 acid test ratio is considered not enough capacity to meet the current liabilities of the company.

Task 4

Definition of Management Accounting

The practice of analyzing financial data and manipulating it to make informed business decisions is known as management accounting. As per the suggestions of Zahid and Vagif (2020), it entails using financial data to assess corporate performance, create budgets, and make strategic decisions. The primary goal of management accounting is to present managers with timely and relevant information that can be used to make informed decisions regarding the company's future. Management accountants collect and analyze financial data using several methods and methodologies, including cost-volume-profit analysis, variance analysis, and budgeting. They are also crucial in ensuring that the organization's financial records are correct and by applicable requirements. Finally, management accounting is critical for every firm seeking to maximize profits and make strategic decisions based on data.

Importance of management accounting for planning, control and decision-making approaches within the Organization

Management accounting is one of the essential elements that help to determine the budget forecast for upcoming situations of an organization. budget can be planned at the different levels that have played an effective role in product development. The major functions of the budget are considered an effective role to entail financial statements and measurement of business decisions and control of the overall situation (Osim et al. 2020). Apart from that, functions of management imply four different basic operations that help with the planning and decision-making approaches of an organization. As per the suggestions of Weetman (2019), financial planning and decision-making approaches are considered for conducting planning, execution and control of financial stability. Management accounting helps top-level managers of the organization to get an idea and provide much more report to the necessary information which can manage its different activities and help that manager to justify the suitable decision for further development.

On the other hand, following the role of decision-making approaches on an organization choosing accurate alternatives described in the above section will allow us to get an idea and namely planning, organizing and decision-making for further development. However, it can be seen that a manager cannot manage an overall plan throughout the help to choose effective competitiveness and follow a specific structure that aids to maintain its multiple operations. As per the suggestions of Kose and A?DEN?Z (2019), to analyze the financial statement of an organization evaluating financial statements and data sets is considered one of the effective approaches that must need to consider. Apart from the discussion, it can effectively be allowed to forecast future benefits and trends that play a crucial role in managing the medium of communication and culture.

References

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  • Barra, C. and Ruggiero, N., 2021. Do microeconomic and macroeconomic factors influence Italian bank credit risk in different local markets? Evidence from cooperative and non-cooperative banks.Journal of Economics and Business,114, p.105976.
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