Financial Management And Control Assignment Sample

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Financial Management And Control Assignment

Introduction - Financial Management And Control

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Financial management controls are known as internal controls that provide reasonable assurance to achieve long-term goals and objectives of LuxuryHeatingplc. The aim of the study is successfully satisfying individual stakeholders of the business through an efficient decision-making process. The importance of the study is the evaluation of the potential business processes to involve the greatest benefits.

Part A

Profitability ratio

Gross profit margin (£000)

2020

2021

Gross Profit

10,620.0

11,100.0

Net Sale

10,780.0

13,550.0

Gross Profit Margin

0.99

0.82

Net profit margin (£000)

2020

2021

Net profit

5,070.0

2,310.0

Revenue

21400

24650.0

Net profit margin

0.24

0.09

Table 1:Profitability Ratio

(Source: Self created)

Profitability ratio analysis methods are the financial matrix which is basically used for calculating business ability by identifying net earnings or profit. Practically 0.99% and 0.82% “Gross profit margin” is calculated by the ‘net sale’ and ‘gross profit’ of the business compared to the financial ability of Luxury Heating plc(Luxryheatingco.com, 2022). The “Gross profit margin” and “Net profit margin” are usually used to calculate the profitability ratio. In the year 2020, gross profit is almost £10620, and £11100 is for 2021. The financial ratios are calculated to compare the financial abilities of the individual business company (Kembauw et al. 2020). The net sale was almost £10780 and £13550 for the booth financial years. The profitability ratio of “Luxury Heating plc” is computed by the net margin which is almost 0.24% in 2020. The profitability ratio of the business efficiently compares the financial transactions after identifying the total revenue. 

Efficiency ratio

Inventory turnover ratio (£000)

2020

2021

Net Earnings

17,260

18,090

 Shareholders' Equity

16,880

16,645

Return on Equity

102.25

108.68

Asset turnover ratio (£000)

2020

2021

Net sale

10,780.0

13,550.0

Average total asset

22,245

28,005

0.48

0.48

Table 2: Efficiency ratio

(Source: Self created)

Inventory turnover ratio and asset turnover ratio are used during the calculation of the ‘efficiency ratio’. Around 102.25 and 108.68 “inventory turnover ratio” is calculated after identifying the net earnings and net revenue of the business. Net revenue is around £21400 in 2020, and almost £24650 net revenue has been identified from the company's comprehensive income statement. The efficiency ratio indicates the minimum percentage of expenses and revenue of the business company which is useful to calculate the “inventory turnover ratio” of the business company (Prihartono and Asandimitra, 2018). Around 0.48% Asset turnover ratio has been calculated after identifying the net sale as reasonably as the average total assets. In order to identify companies' efficiency level asset turnover ratio is necessary and the company can manage those assets to generate more revenue for a business. Individual business organizations are measures business efficiency by a specific ratio.

Liquidity ratio

Current ratio (£000)

2020

2021

Current Asset

7165

9300

Current liabilities

4215

5120

ratio (CA/CL)

1.70

1.82

Acid test ratio (£000)

2020

2021

Current Asset

7165

9300

Inventory

3400

3950

Current liabilities

4215

5120

0.89

1.04

Table 3: Liquidity ratio

(Source: Self created)

Specific ratio measures companies' ability to identify the debt obligations of the business organization. In the calculation current ratio as well as the acid test ratio is necessary to identify the operating cash flows of the business (Siswanti and Halida, 2020). Current assets are almost £7165 and £9300 for both the financial years of “Luxury Heating plc”. Almost £4215 and £5120 companies current liability which is used during the calculation of ‘Liquidity ratio’. Around 1.70 and 1.82 current ratios are computed to identify the liquidity position of the business organization. The acid test ratio is the type of liquidity ratio which is generally used to identify a company's financial ability by the cash position. ‘Liquidity ratio is the financial ratio to identify the company's ability as well as short term and long term debt obligations. The specific ratio is useful to determine the liquidity structure of “Luxury Heating plc”.

Gearing ratio

Debt ratio (£000)

2020

2021

Total debt

45879

32739

Total assets

1,150

6,240

Debt ratio

39.89

5.25

Table 4: Gearing ratio

(Source: Self created)

A specific ratio is a financial ratio to compare owner's equity as well as an estimated fund that has been borrowed by the company. As cited by Lentner (2019), individual business organizations are compared financial ability by the ratio analysis methods. The financial management system of Luxury Heating plc is sustainability controls financial position by the statement of profit and loss account. The new entity of the financial measurement as well as important activities is compared by the financial ratio analysis methods. The gearing ratio is calculated by the total debt and total capital of the business organization. Almost £45879 is recognized as total debts in 2020 and that can be measured by the financial ratio analysis methods. ‘Gearing ratio’ is necessary for the business to identify total debts as well as total assets of the business. Total debt is almost £32739 in 2021 which has been collected from the company's statement of financial position.

Investment ratio

 Price earning (£000)

2020

2021

Share price

15,640.0

14,768.0

Earnings per share

1,240.0

1,877.0

Price earnings ratio

12.61

7.87

Table 5: Investment ratio

(Source: Self created)

‘Investment ratios’ are measure the company's performance management ability by using monthly reporting process. Investment decisions are the potential in the individual business organizations and that can identify the current market prices of the individual shares (Chang et al. 2020). Shares price of the business company is almost £15640 and £14768 for both financial years. The company's net earnings and profit after tax are necessary to calculate attributable ordinary shares. The long-term sustainability of a business depends on the investment decision-making process and the Price earnings ratio is necessary to calculate the investment of the business. The company's financial growth and earnings per share are necessary to calculate the P/E ratio of “Luxury Heating plc”. In order to, compare the current market price of the business organization is necessary and that can be calculated by the P/E ratio analysis methods. Almost 12.61 and 7.87 is the P/E ratio calculated to highlight the capability of management.

Part B

Critically evaluate different types of investment techniques

Investment analysis is an important method to evaluate the economical trends of the business. Investment analysis is necessary to measure the suitable business performance of the organization. Conducting an investment decision-making process is necessary for the business to identify the roles and responsibilities of individual competitors (Piatti-Fünfkirche and Schneider, 2018). An investment decision-making procedure is required for the business and that can make positive support to the business company. The equilibrium of the economic conditions is necessary for the business and acquisition accounting is an efficient way to determine the financial conditions of the business. Respective decision-makers of the business organizations are necessary and can able to assemble the potential requirements of the business. In order to, financial aids are crucial for the business and that can be involved by the individual investors.

ARR

Column1

Column2

Accounting rate of return

Particulars

£

Initial investment

92000.00

Year 1

25000.00

Year 2

30000.00

Year 3

40000.00

Year 4

40000.00

Year 5

50000.00

Residual value

18000.00

Accounting Rate of Return( Initial Investment/ Cumulative Returns*100)

36.00%

Table 6: Accounting rate of return

(Source: Self created)

ARR helps to determine the annual percentage rate of a project and that can be calculated annual profit of the business. In order to identify the multiple considering of the project, ARR considered the expected rate of return of each and individual project. ARR is greater than the required rate of return of the business and is more attractive for investment. The estimation of the financial ratios is necessary for the business, to analyze the expected cash flows of the business (Priono et al. 2019). In order to identify the overall subscription cost of the business and recurring revenue is necessary for the business to calculate the ARR of the business. Identifying the initial value of the investment, as well as net returns, is necessary for ARR.

The initial investment is almost £92000 and the residual value is almost £18000, which is useful to identify the initial investments as well as cumulative returns of a business. In order to identify, the initial value of the business ARR is required when commuted investment appraisal techniques of each project. The expansion of revenue, as well as the total amount of the consumers, churn is crucial to a computed annual profit of investment (Saputra et al. 2021). The pieces of information of the financial management system are necessary to identify the financial accountability of the different business companies. Sometimes depreciation expenses are subtracted by the ARR after commuted (current value - original value). The specific formula helps to acknowledge the percentage of rate of return as well as the initial investment of each project.

PBP

Payback period

Particulars

£

Cumulative cash flow (£)

Initial investment

(92,000.00)

(92,000.00)

Year 1

25,000.00

25,000.00

Year 2

30,000.00

30,000.00

Year 3

40,000.00

40,000.00

Year 4

40,000.00

40,000.00

Year 5

50,000.00

50,000.00

Payback period

3.33

Table 7: Payback period

(Source: Self created)

"Payback period" is describe the time length of each project and identifies individual investors' need to improve the financial conditions of each project. In order to, calculate PBP annual cash flow and cumulative cash flow is necessary and capital budgeting is sometimes referred to by the PBP techniques. An investment appraisal technique is necessary to identify the cash flow position of the business. PBP is appropriate to measure the investment risk of an individual business organization and PBP is the shortest method to identify the strategic directions of the project (Sumtaky et al. 2018). Order to identify the liquidity position of the business is necessary and sometimes investment risk is also measured by the PBP. Perhaps PBP is the simple method of accounting but the potential feasibility of the business is also measured. 

Sometimes the fundamental of corporate finance and capital budgeting is necessary which has been calculated by the PBP. Conceptually the basic difference between time and the initial investment is also computed by specific methods. The associated cost of the project is necessary which has been calculated by the PBP. “Financial management and controls” also known as internal controls of the business and improves management structures through the financing decision-making process (Jayawarsa et al. 2021). Economical existence as well as financial management of SME using PBP methods to minimize investment risk of the business. The three main functions of financial management such as financial decisions, investment decisions as well as dividend decisions to utilize the overall fund of the entire enterprise.

Critical understanding of the financial techniques 

Figure 1: Financial planning

(Source: Sampoerno and Asandimitra, 2021)

The “Financial analysis techniques” is necessary and summarized by the financial data of the business. Efficient financial analysis techniques sometimes minimize unusual expenses of the business and measure the future risk of the business (Anoos et al. 2020). Sometimes horizontal and vertical analysis is necessary to identify each and every financial activity of the business company. A critical analysis of the financial statement is necessary for the business and that can be assessing the viability and stability of financial conditions of Luxury heating plc.

Individual decision-makers fulfill the basic requirements of the business and that significantly determines the financial decision-making process of business. The abilities of financial position are necessary for the business and that makes better support to adopt organizational consequences (Sampoerno and Asandimitra, 2021). In order to explain the value of the information process, the decision-making process is necessary for the business and that efficiently eliminates uncertain conditions before the decision-making process.

Conclusion

Based on the above context it can be concluded that financial management and controls are involved in the efficient planning, organizing, and decision-making process. Proper utilization of the fund and financial resources are involved by investment decision-making and controlling organizational activity by using a strategic plan. Planning, controlling, decision making and directing are four crucial elements of financial management that identify positive financial sources. Ratio analysis methods are useful to compare the financial abilities of Luxury Heating plc and identify potential requirements for an efficient decision-making process. 

Reference list

Anoos, J., Ferrater-Gimena, J.A.O., Etcuban, J.O., Dinauanao, A.M., Macugay, P.J.D. and Velita, L.V., 2020. Financial management of micro, small, and medium enterprises in Cebu, Philippines. International Journal of Small Business and Entrepreneurship Research8(1), pp.53-76.

Chang, C.L., McAleer, M. and Wong, W.K., 2020. Risk and financial management of COVID-19 in business, economics and finance. Journal of Risk and Financial Management13(5), p.102.

Jayawarsa, A.K., Purnami, A.S. and Saputra, K.A.K., 2021. Meaning the economic existence and financial management of the small organization of a traditional village in Bali. International Journal of Business, Economics and Law24(5), pp.8-15.

Kembauw, E., Munawar, A., Purwanto, M.R., Budiasih, Y. and Utami, Y., 2020. Strategies of Financial Management Quality Control in Business. TEST Engineering & Management82, pp.16256-16266.

Lentner, C., 2019. Sustainability and Control Issues of the Financial Management of Local Governments–Through Hungary’s Example. Visegrad journal on bioeconomy and sustainable development8(2), pp.53-57.

Luxryheatingco.com, 2022, Heating company. Available at: https://luxuryheatingco.com/ [Accessed on: 12tth May, 2022]

Piatti-Fünfkirchen, M. and Schneider, P., 2018. From stumbling block to enabler: the role of public financial management in health service delivery in Tanzania and Zambia. Health Systems & Reform4(4), pp.336-345.

Prihartono, M.R.D. and Asandimitra, N., 2018. Analysis factors influencing financial management behaviour. International Journal of Academic Research in Business and Social Sciences8(8), pp.308-326.

Priono, H., Yuhertiana, I., Sundari, S. and Puspitasari, D.S., 2019. Role of financial management in the improvement of local government performance. Humanities & Social Sciences Reviews7(1), pp.77-86.

Sampoerno, A.E. and Asandimitra, N., 2021. Pengaruh financial literacy, income, hedonism lifestyle, self-control, dan risk tolerance terhadap financial management behavior pada generasi milenial. Jurnal Ilmu Manajemen (JIM)9(3), pp.1002-1014.

Saputra, k.a.k., subroto, b., rahman, a.f. and saraswati, E., 2021. Financial management information system, human resource competency and financial statement accountability: a case study in Indonesia. The Journal of Asian Finance, Economics and Business8(5), pp.277-285.

Siswanti, I. and Halida, A.M., 2020. Financial knowledge, financial attitude, and financial management behavior: Self–control as mediating. The International Journal of Accounting and Business Society28(01), pp.71-98.

Sumtaky, M., Chandrarin, G. and Sanusi, A., 2018. Effect of elements of regional financial management towards SKPD regency/city performance and its implication on public service. International research journal of engineering, IT & scientific research4(2), pp.73-86.

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