Level 4 Business Finance And Economics Assignment Sample

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Introduction of Level 4 Business Finance And Economics Assignment  

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The structure and terms used within the main financial statements have been interpreted through various management accounting techniques for planning, control and decision-making within the organization. Calculation of the main accounting ratios has been done and explanation has been provided with the significance in terms of organizational performance.

2. Discussion over financial and non financial analysis of XYZ Plc

2.1) External and Internal Determinants of Business Performance

Discussion on Microeconomic or Macroeconomic Factor

The determinants that have been identified could be used for determining these factors as microeconomic or macroeconomic by analyzing the business performance for XYZ Plc through and PESTEL Analysis. The various weaknesses and the threats that have been discussed with reference to the company XYZ Plc. It could be recognized and at the earliest and the weaknesses are to be aimed at minimizing with maximization of the strengths by capitalizing on the various opportunities. In addition it can available in the market and using the strengths in the most efficient and effective manner (Syverson, 2019). These could also be regarded as the internal determinants of the business.













1.Policies of the 2.Government

3.Level of corruption in a nation

4.Foreign Trade policy

5.Monetary policy

1.Economic Growth of a nation

2.Exchange rates

3.Inflation and Interest rates

4.Unemployement factors of a country

1.Growth of Population

2.Tastes and preferences of the consumers

3.Cultural differences between the consumers

1.Incentives given by the government

2. Innovation and technological advancement in an organisation.

3. Research and development activities in an organisation

1.Policies of the Environment

2.Climate changes

3.Health hazards to the consumers

1.Laws of Discrimination and Anti trust

2.Laws on Employment

3.Consumer Protection Act

4. Trademark and copyright of the various intangible assets of the company

Table 1: PESTEL Analysis of XYZ Plc

(Source: Created by learner)

The five forces of Porter Analysis could be used for the analysing and planning of a business model strategically (Egbunike, 2018). The model could be used for describing the five forces that have a great impact on the business and affect the sales volume and success rate of a business organization (Morrow, 2018). The five forces could be termed as “Rivalry”, “purchasing power”, “supplier power”, “barriers” to entry and “threat of substitutes”.


The element of Rivalry of the five Porter’s forces could be used for measuring the degree of competition that could be existing in the market of the products or the services that are sold by the XYZ Plc (Benzaghta, 2020). This particular element of the model says that competition works as a drive force for generating profits and gains to the company. The model speaks that the business of the XYZ Plc could find ways for development of differentiated products in the market. The business could use it for gaining competitive advantage over the rivals and increase the share of profits by expanding its horizon into the market share.

Purchasing power

The demand of the consumers is to be backed by the purchasing power of the consumers. The market where the purchasing power of the individuals are high may result in an increase of the sales volume and the market with low purchasing power could result in suffering of the business as it would not be able to attract a lot of potential customers into the business.

Supplier power

The suppliers of the business could be a great influence to determine the success of failure of the organization (Pan, 2021). The source of raw materials from the supplier could be from a reliable source for promoting smooth functioning of the business operations.

Barriers to entry

The barriers to entry into business are the factors that restrict and prohibit the business of the XYZ Plc from increasing their share of profits (Ortega, 2018). A huge number of companies who offer similar types of products or services in the market could lead to a fight over gaining the number of customers.

Threat of substitutes

The porter theory could be used for stating that the sales of the business of the company XYZ Plc is not only directly threatened by the products or the services. It also offered by the competitors of the business but also by the other businesses that develop products and services that could be seen as a major substitute for the products offered by the company.

2.2) Role and Importance of Accounting With Respect To Decision-Making

Financial accounting refers to the recording, summarising, and reporting of the Transactions and the economic activity those results from the operations of the business that have been conducted over a period of time (Wang, 2021). The preparation of the “financial statements such as the income statement and the balance sheet” of the organisation governed by the various set of practices that are issued by government authorities. The company prepares these statements, which are used by the various stakeholders of the company such as the investors, managers of the company, creditors.

Standards and Best Practices

A series of accounting principles have been laid out for the companies. The company XYZ Plc could adhere and relate to the common set of standards for completing the financial statements (Khaymovich, 2021). A baseline of analysis could be provided to the investors for comparing the financial health and investing decisions. The assessment of solvency, liquidity could be done through financial statement analysis. The XYZ Plc for allocating the scarce resources could take the decisions.

Investing and Lending Decisions

The financial statements such as “balance sheet, cash flow statements and income statements” could be used for the fundamental analysis of the company for valuation purposes. The various lending decisions could also be taken on a similar basis (Zhao, 2022). The liability of large business loans are always considered after critical analysis of the financial statements.

Corporate Governance

The internal workings of the firm are to be enhanced by the financial statements. The day-to-day operations of the organization of XYZ Plc could be optimized and the various types of the projects would be considered for providing growth opportunities to the organization. Financial information could be used for preparation of budgets, tracking of efficiency of the business, developing short term and long-term strategies for the organization and other decisions could be estimated by the figures of these statements (Kovermann and Velte, 2019).

Distinction between the Major Financial Statements

The Balance sheet of the company shows what a company owns and what the company owes to the various creditors or the lenders. The balance sheet reports “assets, liabilities, and equity”. The income statements on the other hand show the amount of money that is spent over a period of time and the sales made by the organization (Osadchy, 2020). The various expenses that have occurred in connection to the cost of operations and other expenses are also shown in the income statement.

2.3) Explanation of the Layout and the Terms of Financial Statements

The various terms that are used in the financial statements are discussed as follows

“Accounts receivable”

The amount of money that is owed by customers or clients to a business after goods or services have been delivered or sold (Yao and Deng, 2018). The company XYZ Plc has a policy of selling goods on a credit basis.

“Accounts payable”

The amount of money that the XYZ Plc Company owes creditors suppliers for goods and or services that have been delivered or sold by the company are the Accounts Payable.


The assets are the class of land, building, furniture and fixtures, investments made by the company. The assets could be the cash, inventory, accounts receivable and various such assets.


The capital is the equity and the debt capital. The capital is the major source of funds that are generated for long term growth of the company (Lessambo,2018). The company for financing the day-to-day operations of the business could use the working capital.


The expenses could be fixed, variable, accrued or operational. The fixed expenses are the fixed and specific sum of expenses that are incurred by the organization irrespective of the other factors. The variable expenses are dependent on the number of units produced by the company. Examples could be the raw materials, labour costs and various other overheads that are incurred (Rahim, 2018). The accrued expenses are the expenses that have been accrued but not paid. The operational expenses are associated with the daily operations of the business.

Revenue and cost for 2019

(Source: Created by learner)

Revenue and cost for 2020

(Source: Created by learner)

2.4) Calculation And Interpretation Of The Financial Ratios

Comparison of various financial ratios for the year 2019 and 2020

(Source: Created by learner)

Financial Analysis of XYZ Plc

A) Operating Profit Margin

The operating margin ratio has been tabulated as 9.60% and 1.27 % for the years 2019 and 2020 respectively. Data indicated that profit has been decreased in 2020. 

Operating Profit Margin Ratio




(Operating Profit/Sales)*100

Operating Profit






Operating Profit Margin Ratio



Table 2: Operating profit ratio for the years 2019 and 2020 of XYZ Plc

(Source: Created by learner)

B) Gross Profit Margin

The Gross Profit Margin has been tabulated as 26% and 13.64 % for the years 2019 and 2020 respectively. Gross profit margin has been decreased due to increase cost of production.

Gross Margin Ratio




(Gross Profit/Sales)*100

Gross Profit






Gross Margin Ratio



Table 3: Gross Margin profit ratio for the years 2019 and 2020 of XYZ Plc

(Source: Created by learner)

C) Current Ratio

The Current Ratio has been tabulated as 1.289 and 0.949 for the years 2019 and 2020 respectively. Current ratio has been decreased and it indicated that company ay failed to repay their current liabilities.

“Current Ratio”




“(Current assets/Current liabilities)”

Current Asset



Current Liabilities






Table 4: Current ratio for the years 2019 and 2020 of XYZ Plc

(Source: Created by learner)

D) Acid Test Ratio

The Acid test ratio has been tabulated as 0.55 and 0.44 for the years 2019 and 2020 respectively. Company lost their ability to repay current debt in 2020.

 “Acid Ratio”


“(Current assets-inventory/Current liabilities)”

Current Asset






Current Liabilities






Table 5: Acid ratio for the years 2019 and 2020 of XYZ Plc

(Source: Created by learner)

E) Eps (Earnings per Share)

The Eps (Earnings Per Share) has been tabulated as 6.958% and 0.750 % for the years 2019 and 2020 respectively. EPS has been decreased due to low income of company.

Earning Per Share in Pence


(Earning Per Share / Share Price )

Earning Per Share in Pence



Share Price in Pence






Earning Per Share in Pence

Profits for the year



No of shares



Earning Per Share in Pence



Share price



Table 6: Earning per share for the years 2019 and 2020 of XYZ Plc

(Source: Created by learner)

(Refer to Appendix 1 and 2)

2.5) Description Of Management Accounting

Management accounting could be termed as the practice of “identifying, measuring, analyzing and interpreting” the financial statements for communication of the financial information to the managers for achieving the goals of the organization of XYZ Plc. This type of accounting relates to various non-financial data. The management accounting could help in focusing on providing better services to the customers by providing them quality products at fair prices. The management accounting of XYZ Plc could assist in controlling the prices and employing the various cost control devices. It could be used for setting the various quality standards for improving the operations of the organization (Kadim, 2018). The characteristics of such management techniques are that they use selective nature and it represents more emphasis on the planning. This accounting system provides various information but no decision. The problems of choice and the study cause relationship could be established between the elements of cost and recognition of non-monetary variables.

Importance of Management Accounting Within an Organization

A) Planning

The planning in management accounting could be initiated by analyzing the opportunities and setting the objectives for the organization. The premises could be developed and the various alternatives are to be properly analyzed and identified. The best alternative is to be chosen. The identified alternative is to be evaluated on various grounds and selected from the list. An effective management plan is to be determined and implemented (Musallam, 2018). The plan could be reviewed on a regular basis to manage the deviations and take up steps for rectifying.

The process of planning is very crucial to the organization. It helps the organization to improve the future performance by establishing the objectives and taking a course of action for the future growth of the organization. Planning helps in risk minimization and level of uncertainty. It helps in facilitation of opportunities and coordination of activities by providing the direction for action and identifying the future threats and opportunities. Planning also sets out the standards for controlling purposes.

B) Control and Decision Making

The steps of control and decision making could be achieved by the purpose of making routine choices and the judgments. The outcomes of the planning are to be influenced by the controlling and decision making process. The competitive bets could be placed and strategic decisions could be taken for minimizing the constraints of decision making (Rikhardsson and Yigitbasioglu, 2018). Good decision-making helps the managers in showing the employees that value that is added into the organization by their collective efforts and it evaluates the decisions for displaying the thoughts and the trust. Controls help in checking the errors in order to take corrective measures and actions. The deviations from the standards could be minimized and the goals of the organization could be achieved in a desired manner (Dahal, 2019). Controlling also helps in ensuring order and discipline into the organization. The undesirable activities like corruption, theft, delay of work and uncooperativeness could be checked by the management of XYZ Plc.

3. Conclusion

The report has been conducted with the view of analyzing the financial statements of the XYZ Plc and studying the ratios for defining the various aspects of liquidity and solvency. The micro- and macroeconomics impact on the competitive environment of an organization has been discussed alongside the role of accounting within the organization with respect to both reporting and decision-making aspects.


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