Accounting And Finance Functions In Business Organizations

Role of Accounting Department

Panini Limited is a medium-sized organization which is specified in producing bread for the supermarkets in the United Kingdom. Thus, the company commenced its business operations in the year 2016. However, Panini is also planning to increase its operations because of its success and achievements in the recent years. The financial statements of the company have also been provided for an attention and consideration.

The primary purpose of this report is to evaluate and measure the significance of Accounting & Finance functions, roles, and duties in the business organization. The techniques of management accounting have been implemented for decision-making, controlling, and planning in the organization. However, the different sources of finances which is available to medium and small company in order to expand the business have also been discussed in this report. Furthermore, with the help of Panini Ltd. financial statements, the financial performance is being measured and evaluated with the help of financial ratio analysis. Hence, on the basis of financial results a recommendation has also been provided with respect to improvements, reason for changes, and possible. Lastly, based on the overall discussion and analysis, a conclusion has been provided.

The company’s accounting department forms an essential part of the business operations and looks after the classification and reporting process of the transactions. However, the accounting department delivers data set for the previous year’s performance or position to the management based on which the significant decisions is commenced by the business. Hence, the company’s annual report demonstrates that the Vice President at Panini Limited has the whole responsibility to look after the reporting and accounting process of the business.

The accounting department’s responsibility with respect to the financial reporting is considered to be of greatest significance (Griffin and Mahajan 2019). Hence, some of the functions and responsibilities are discussed and mentioned below:

• The financial reportions preparations and obeying with the agenda which is implied by IFRS in order to maintain consistency.
• The financial records which are being framed by the business may assist the company’s management in taking crucial decisions on the basis of data delivered from the prior financial years.
• The department of financial accounting mainly deals with an account payables and accounts receivables on the direct basis & assures that a proper relationships or connection is maintained with the groups. Thus, it is clear that the accounts department also assures that collections of a cash are made timely and payments of cash to the parties.

Management accounting refers to the strategic tools application for framing reports which may be utilized by an internal manager with respect taking significant managerial decisions. Thus, the reports which are being framed by the management accountant are extremely different from the financial reports & the similar are utilized for the internal process & decision-making. Some major instances of management accounting frameworks are balanced scorecard, budgets, and total quality management. Hence, the accounting department responsibilities with respect to the management accounting are discussed and mentioned below:

• The accounting department frames the employee’s payroll information and assures that the employees obtain they payments in an appropriate way. Thus, the department analyses the working hour periods of all the employees & based on the similar payrolls are issued and recorded.
• One of the most significant functions which is implemented by the department of accounting is the budgets formulation which is a shared practice commenced by the business in order to ensure that plans are devised & a proper control is maintained or handled over the business operations. Additionally, the budgets also assist the management in taking important decisions & assure that effectiveness is maintained in an organization’s operational process.

The segment of tax also falls under the category of accounting department’s responsibility of Panini Limited & some of the essential functions purchase the firm under this section are discussed and mentioned below:

• The business is liable for the payroll taxes payment and consequently the department of accounting is provided with the responsibilities of assuring that the payroll information or data is maintained properly and the taxes are also being paid when it is due. Moreover, the department also assures that corporate taxes are calculated properly & paid when the similar becomes dues.
• Whereas, on the other hand, the accounting department assures that tax returns are being filed properly & supervises the entire tax planning function and obeying overall with the rules and regulations of tax. In this way, the department endorses transparency and efficiency in its business operations.

The accounting departments contribution is enormous in the businesses audit function because an analysis is made on an accounting record, prepared by the accounting department itself by the external auditor (Baig and Khalidi 2020). Hence, the essential responsibilities under this section are presented and mentioned below:

• The accounting department presents properly before the judgements of all the auditors & approximations which are formulation or devising the financial reports & also implies the foundation behind such estimations and judgements. This demonstrates how efficiently the framework of financial reporting of the company is maintained.
• The accounting department functions closely with the committee of audit so that the ordinary updates may be made with respect to the process of reporting and a better concept may be originated concerning the businesses internal control.
• The audit committee and department assure that the management obeys to all the laws and regulations valid on the business & further endorses transparency in the business’s operations. Hence, the business reacts to the departments requirements and makes essential changes whenever its feels like alterations are needed to be made.

The Panini business is looking to increase its operations to various regions so that net revenue may be created & overall business may be expanded. To accomplish this, the company’s management is needed to commence more investments & this is where the finance team role becomes fundamental. The finance team will be accountable for analysing appropriate investment opportunities & reviewing the similar so that investments may be undertaken. Hence, the finance accomplishes these fits by commencing an investment appraisal examination and also relating capital budgeting techniques. This is considered to a significant tool because it enables the finance department in order to decide the project’s viability and approximate the cash flows into which the project may generate. The finance department primary objectives are to increase the net earnings & businesses overall wealth. To accomplish such objective, the department of finance are needed to commence comprehensive research so that alterations may be brought with respect to the business’s operations.

Role of Management Accounting

The finance department is mainly accountable for handling the business capital structure and also for assuring that the business may increase capital whenever such a condition happens. Thus, the selection for the capital sources is to be created by the finance department consider the goals and strategies of the business. In addition, the finance responsibility is significant as no firm may grow or expand if it cannot have suitable access to capital.

The businesses’ primary objective is to assure that the businesses managers which are the lenders or investors are gratified with the progress. Thus, the finance department depend upon the board’s direction which frames the dividend policies & determines the most appropriate ratio for the dividend pay out & the business retention. The shareholders require share in net profits and consequently it is necessary that the dividends are managed properly by the management. Hence, the Panini’s management has assured that it constantly covers the shareholders expectations so that pleasant relations may be maintained & everyone has an alteration to obtain the share in the company’s net profit. Moreover, it also has the accountability of balancing the shareholders expectations & look after the company’s retained earnings in order to boast the internal strength in the future.

One of the most primary functions or responsibilities which is obeyed by the finance department is the working capital function & this is intimately associated with the daily business operations (Baum, Crosby and Devaney 2021). It is the team requirement to assure that better funds are available with the firm to lead their operations & meet the short-term obligations in an efficient manner. Furthermore, the department also checks the businesses credit policies and brings about alterations if any policies if it feels the similar is not reliable with the business operations.

Overall, it can be concluded that the finance department properly handles all the business financial operations together with the accounting department. However, the roles and responsibilities which are implemented by accounting and finance team are considerably important for the company’s development and growth as a whole (Easton et al 2018).

There are various finance sources for the businesses observing to increase the funds. The following sources of finance for the medium-size enterprise are discussed and mentioned below:

1. Overdraft:The facility of overdraft is flexible & can be extremely beneficial as an arrangement of backup. Generally, it is considered to be a short-term financing arrangement & is usually simple to arrange. Hence, it manages to be for lesser amounts & can be quite costly way to borrow, along with the interest and fees payable.
2. Angel Finance:Such type of financing is normally delivered by wealthy persons or retired, popular business individual (Farfan et al. 2017). Sometimes angel investors would club altogether in order to develop angel investment networks and syndicates. It is frequently an experienced or knowledgeable professional who may deliver expertise & advice and financial support. Hence, for some companies, this may make this finances sources invaluable.
3. Venture Capital:Businesses that manage to be of significance to the venture capital finances are those with real growth potential (Alkaraan 2017). Thus, this is improbable to be a choice for smaller businesses & venture capitalists would relay capitalise in medium sized business. There can be considerable pressure on the business in order to provide high returns to venture capitalists.

Financial ratio is considered to be the quantitative framework that business owners utilize to collect valuable insights into the business firm’s solvency, liquidity, market value, profitability, coverage, and efficiency (Fadli and Hongbing 2020). Thus, financial ratio delivers this information or details to the business managers by examining the data covered in the company’s income statement, cash flows statement, and balance sheet.

Gross Profit Margin refers to a metric analyst which is utilized in evaluating the firm’s financial position. On the basis of financial ratio computation, it can be observed that the company’s gross profit margin reduced to 28.39% in 2019 from 35% in 2018, implying that Panini has make less money on every product it vends and has also not utilizes its net revenue efficiently. This might happen because of the higher supplier costs, intense competition, lower prices, industry changes, and ancillary cost of goods sold.

Role of Tax Section

Operating Profit Margin evaluates how much net earnings an organization makes on the net sales after disbursing for the production’s variable costs, such as raw materials and wages. Higher ratios are considered to be more favourable in comparison to lower ratios. Based on the calculation, it can be seen that the Panini’s metric has decreased to 20.04% in 2019, which means that the company has generated less income from its total net revenue.  The primary reason behind a decline operating profit margin is due to a high COGS, high fixed costs, and a decline in the periodic revenue.

This metric is considered to be significant because it is a sign of success or achievement for the group & fall under the profitability ratios category. ROCE is mainly utilized by investors and management for the objective of taking decisions. The table that has been provided in the excel sheet, it demonstrates that there is a considerable reduction in the estimates. Thus, decline in the ROCE implies that the businesses capital is not being properly utilized by the management. This demonstrates inefficient resources utilization and such approach may cause the company in long-run. Hence, the company’s management must take steps in order to assure that the net capital is used efficiently by the management in order to improve the profitability estimates.

Current & Quick Ratios refers to a liquidity ratio that assist analysts and investors in measuring the firm’s capability to cover its short-term or current obligations. On analysing the Panini’s current ratio, it has been observed that the metric increased significantly to 4.12 times, which means that although the group is having sufficient cash to cover all of its current debts, but it is not managing its working capital management efficiently in 2019 as compared to 2018 (Campisi et al 2019). Whereas, on the other hand, the quick ratio turns in negative to 0.08 times in 2019 from 0.53 times, suggesting that the company does not have any liquid assets and must be treated with caution.

Inventory turnover refers to a financial metric demonstrating how many times an organization has replaced and sold its inventory during a stipulated period of time. On the basis of ratio calculation, it can be noticed that the metric has reduced significantly to 12.22 times in the current year which indicates that Panini is holding the inventory longer than what it has been measured previously. Moreover, this suggests excess inventory and weak net sales which is also referred as overstocking. Hence, it might generate an issue with the products which is being proposed for sale.

Receivable Collection Period evaluates the days it takes, in order to gather accounts receivables on the basis of average balance. It implies the company’s effectiveness in the management practices of accounts receivables. On analysing the metric, it can be seen that the metric has increased considerably to 42.53 days in 2019 from 27.74 days in 2018, implying that Panini is collects its payments quite slower. Thus, company requires efficient communication with the customers with respect to their debts and their payments expectations.

Payable Payment Period evaluates the days it takes the business to disburse its accounts payable. It is mainly computed on an annual or quarterly basis, & it implies how efficiently the cash outflow of the company are being managed. Based on the ratio calculation, the Panini’s metric decreased to 21.94 days in the current year which suggests that the company is paying its implications too soon, meanwhile it is intensifying its working capital. It also indicates that the firm is taking benefit of early discounts of payment which is being proposed by the suppliers.

Conclusion & Recommendation

The above discussion and analysis appropriately demonstrate the Panini Limited business environment. It also portrays the significance of a suitable accounting & finance department regarding the business. Further, it also depicts the responsibilities and functions which are being commenced by the team in an effective way. Moreover, the discussion then demonstrates the key financial accounting ratios which are calculated for the approximations and businesses financial performance. However, the company’s management require to improve its liquidity and profitability positions because these two may influence the business operations if the similar are not maintained appropriately.

References

Alkaraan, F. (2017). Strategic investment appraisal: Multidisciplinary perspectives. In Advances in Mergers and Acquisitions. Emerald Publishing Limited.

Baig, U., & Khalidi, M. A. (2020). A grounded theory exploration of appraisal process of capital investment decisions—Capex appraisal model (CAM). Independent Journal of Management & Production, 11(7), 2778-2804.

Baum, A. E., Crosby, N., & Devaney, S. (2021). Property investment appraisal. John Wiley & Sons.

Campisi, D., Mancuso, P., Mastrodonato, S. L., & Morea, D. (2019). Efficiency assessment of knowledge intensive business services industry in Italy: Data envelopment analysis (DEA) and financial ratio analysis. Measuring Business Excellence.

Easton, P. D., McAnally, M. L., Sommers, G. A., & Zhang, X. J. (2018). Financial statement analysis & valuation. Boston, MA: Cambridge Business Publishers.

Fadli, F., & Hongbing, O. (2020). Can Financial Ratio Change Stock Price?(Lq 45 Index Case Study for 2010-2018). International journal of information, business and management, 12(2), 21-34.

Farfan, K. B., Barriga, G., Lizarzaburu, E. R., & Noriega Febres, L. E. (2017). Financial ratio method peruvian listed companies.

Griffin, P. A., & Mahajan, S. (2019). Financial Statement Analysis. Finding Alphas: A Quantitative Approach to Building Trading Strategies, 141-148.

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