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Managing Finance

University: Durham University

  • Unit No: 15
  • Level: High school
  • Pages: 17 / Words 4369
  • Paper Type: Assignment
  • Course Code:
  • Downloads: 318
Question :

This sample will let you know about:

  • Discuss about the Impact of financial objectives on decision making.
  • Discuss about the relationship between financial function and functional areas.
  • Discuss about the differentiate between management accounting and financial accounting
Answer :
Organization Selected : Rowlinson Knitwear

INTRODUCTION

Finance is one of the resources required by almost every organisation to run the business smoothly and effectively. It is procured from numerous sources with a view to allocate them optimally so that decided goals and objectives can be achieved efficiently (Madura, 2020). It is important for an entity to track the utilisation of the funds available for every department. In this file, Rowlinson Knitwear is chosen which is located in United Kingdom. Furthermore, this assignment covers relationship of financial function with other functional areas, impact of financial objectives on decision making, difference between management and financial accounting and influence of organisational, regulatory frameworks and challenges faced by entities in procuring funds. In addition to this, difference between budget setting and financial forecasting, evaluation of various approaches of budget, factors impacting budget management, measures for budgetary variance and reporting procedures.

TASK 1

1.1 Examine relationship between financial function and functional areas

Financial function with production department- This department comprises of the activities of manufacturing of products staring from raw material to finished goods. There are so many processes involved for making a final item which can be sold to customers. The raw material is purchased only when there is adequate finance available. The production manager of Rowlinson Kniteweat has to make decisions such as make or buy, on the basis of which funds are allocated.

Top management – finance relationship- The main goal of top management is to survive for long term for which there should be adequate funds. Rowlinson Knitwear can raise funds from the investors on the basis of good financial statements only. Therefore, financial function helps in providing the considerations which are taken into account for making decisions. Financial function and marketing- Marketing is all about raising the awareness of the products by reaching the target customers. This has direct impact on the profitability of organisation. Marketing team working in Rowlinson Knitwear has to get the required finance for carrying the activities of advertising, maintaining stock and many more (Finkler, Smith and Calabrese, 2018).
Economics- finance interface- This relationship is related with complying with the various economic policies as developed by the government of a country. There are several standards and guidelines according to which the organisations have to maintain minimum level of finance with it. It is a core finance function which takes into account the marginal benefits and costs.
Accounting and financial functions- Many people use these terms interchangeably but both of these have different functions. Financial function is related with preparing budgets and procurement of funds on the basis of budgets developed. On the other hand, accounting is more about controlling. Therefore, these two departments work closely where the accounting department records every details of financial transactions in order to help the management make financial decisions (Burtonshaw-Gunn, 2017). Want to get Assignment help? Talk Our Expert Now!

1.2 Impact of financial objectives on decision making

Profit maximisation: Financial objectives helps the manager to make those polices and procedure which help in enhancing profitability rate of the entity. Company increase their profitability rate through increasing earning per share of their products.

  • Return on investment: Financial objective of the organisation help to maximize the return on investment. Manager of Rowlinson Knitwear after analysing market condition, take decision to invest in those portfolio securities which helps to reduced their risk ratio on investment and increase profitability return rate.
  • Cost minimization: Main purpose of financial objectives are minimize the cost of company,through reducing fixed cost of the company. Manger take those decision which are beneficial for them to reduce variable and extra fixed cost charging on assets. Rowlinson Knitwear reduce their cost through cutting expense of promote and advertisement (Martin, 2016).
  • Tax minimization: Financial objectives helps in planning those policies which helps to reduce tax liability on company. Manager of Rowlinson Knitweartake decision to invest in those assets on which government provides deduction on their tax liability.
  • Corporate governance: It includes all the ethical rules and regulation which an organisation needs to follow. Financial objective helps entities to work according in ethical way,Each entity make those decision which are not harmful for environment. The manager of Rowlinson Knitwear make those policies which fulfil all rules imposed by government.
  • Capital structure: Success of an entity depends on the capital structure of the company. Capital structure denotes the ratio of equity and debt of the organisation. Manager of an organisation take decision regarding making capital structure depends on the financial capacity of the company. The decision regarding capital structure of Rowlinson Knitwear totally depends on last 3 years profitability rate.

1.3 Differentiate between management accounting and financial accounting

Particulars

Financial accounting

Management accounting

Definition

It is a branch of accounting which is used to analysis financial performance of an organisation through analysing, collecting,recording and summarizing financial transaction of the entity (Cornwall, Vang and Hartman, 2019).

It is a systematic process of recording and analysing all transactions in a way so that managers performs their managerialfunctions effectively.

Objective

Main purpose of financial accounting is profit maximization,and maximize their wealth.

The main objective of management accounting is helps in decision making and enhance the capabilities of managers to perform their managerial functions.

 

Techniques

In financial accounting managers use financial statements,budgets,marginal costing, break even analysis to identify worth of financial transactions.

Managers use absorption costing,job costing,trading and manufacturing statements for the purpose of identifies cost of products it also includes marginal costing ,operation research methods to help in decision making.

users

Financial accounts are made to provides information of the organisation to their external users which includes governments,financial institutions,customers,shareholders,etc.

Information of managerial accounts are made for internal users of the organisations which includes employees ,employers,managers,board of directors (Mitchell and Calabrese, 2019).

Transactions

Only financial transactions are recorded in this type of accounting.

Financial and non financial accounts are recorded in this type of accounting.

Legal rules

Company should follow GAAP rules for these type of transactions.

No standard rules are required in managing accounting.

Nature

Financial accounting is related with analysis of historical data

Transaction of management accounting is related with future scenario of the company.

Area

Area of financial accounting is much wider then compare to management accounting. This branch of accounting focused on each area of organisation.

Are of managerial accounting is narrow compare with the other one, because this branch of accounting mainly target on specific are special internal environment of the entity.

1.4 Analyse the impact of organisational and regulatory frameworks on organisation's approach to financial management

Organisational frameworks-It is a set of actions which should be followed in an organisation to attain goals and objectives of an entity. Some of the elements have been defined which may impact financial management of Rowlinson Knitwear:

Policies and procedures: These are the basic documents which state guidelines and directions by following which all the activities are to be carried. These should be modified with the changes taking place for financial management in the entity (Atmadja and Saputra, 2018).

Governance: This is related with the compliance with all the laws and rules in order to make the company lawful. Rowlinson Knitwear should abide by the principles and standards by which financial statements and reports are prepared.

Protocols: These are the set of rules which exist in every company as it has to act by being within these. There are may different protocols which have direct impact on financial management as no budget can be set without considering the protocol.

Financial misconduct- It the management of Rowlinson Knitwear has determined any sort of financial misconduct, the it should switch to that approach of financial management which can prevent occurrence of such events in future.

Regulatory framework- These are the laws which should be abide by an organisation for carrying the operations lawfully. These are as follows:

Companies Act, 2006- Every company has to get itself registered under this act in order to commence the activities. Since, Rowlinson Knitwear is a SME, if it is raising funds from investors for using it the purpose specified in the prospectus, then it has to use for that motive only. As there are punishments and fines for the same (Loke, 2017).

International Financial Reporting Standards: This standard provides an uniform set which should be followed by companies during financial reporting. Rowlinson Knitwear should abide by these standards in order to report which can be understood by the investors in every country. Without following this, it will be problematic for it to attract investors.

General Data Protection Regulation (GDPR), 2018- This act is for protecting the personal information of investors and customers who have interest in the business. In the context to Rowlinson Knitwear, it should focus on providing adequate security in order to protect the information which may be confidential.

1.5 Analyse the challenges organisations face accessing finance

Finance is an essential part of running organisation. It is the source of providing money to an organisation. Accessing finance is like an art for manager and the capabilities of manager can be analysis on the basis of how well they access their finance from various sources. Organisations faces so many problems while collecting sources of finance. Rowlinson Knitwear is an small organisation which provides school and corporate wear to their customer. Market are of the company is not so broad the company facing so many problems of accessing finance, which are mention below:

Time consumption: The procedure of collecting finance from various source is too long and it take more time, thus the company not get finance at the right time when they needed it. Rowlinson Knitwear is small enterprises and they follow all the rules and procedure of corporate ethics thus it becomes a time consuming process of accessing finance (Karadag, 2017).

Lack of goodwill: the brand value of small size entreprise4s is not so strong competitively from large size organisations thus big financial institutions and banks are afraid to provide them loan and other financial facilities. The goodwill of Rowlinson Knitwear is not so good in the market place they did not get loan easily from banks.

Administrative capabilities: Due to lack of financial capital and technological advancement strategies regarding marketing of their products are not so effective thus investor not interested to invest their money in Rowlinson Knitwear .

Attitude to risk and innovation:It is the rule of business the more they take risk the more they get profit. The management team of small size organisations are not willing to invest their finance in risky securities,even they did not borrow loan from those institutions whose interest rate is high they afraid of taking risk and innovate new products. Manager of Rowlinson Knitwear not invest in risky securities. Thus the earning of the company from their portfolio securities is not so high.

TASK 2

2.1 Differentiate between budget setting and financial forecasting

Budgeting and financial forecasting are techniques of financial accounting. Manager use these techniques for making financial plans (Shanmugam and et. al., 2017). Both techniques has their own merits and demerits organisations use both techniques .There are some differences between Budget setting and financial forecasting theses are describe as follows:

Particular

Budget setting

Financial forecasting

Definition

Budget setting is a process of preparing numerical financial statement which showcase income and expenditure of an organisation at fixed period of time.

It is the process of predicting future outcomes of an organisation on the basis of analysing historical data.

Basis

The process of preparing budget is based on future data.

The process of forecasting is related with collection of past data of an organisation

Time

Budgeting is related with short period of time.

It is prepared for longer period of time.

Focus

Budgeting is focusing on planned events (Prawitz and Cohart, 2016).

Forecasting is focusing on anticipating or probable events.

Results

Forecasting end with preparing of planning process

Budgeting started with planning process.

Controlling tool

Budgeting is act as controlling tool in management process.

Forecasting is not a tool of controlling process.

Responsibility

It is the duty of top level managers to make budget

Researchers analysers are liable for financial forecasting.

2.2 Evaluate budget setting approaches used by organisation

Budget setting is a process of preparing budget. It is essential part of budgetary control. There are various type of techniques which are used by organisations for preparing a budget,followings are mention as above:

  • Incremental budgeting:Organisations use previous years data to make budget. For this purpose they collect information from past year budgets, and summery of past year transactions.

Advantages: It is simple and quick method of preparing budget (Grafova and et. al., 2017).

  • These method gives accurate results for those organisations whose market conditions are stable.

Disadvantage: This technique is totally based on historical data which means company may consider historical errors in preparing budget.

  • In this technique the budget is based on the assumption is that the given data is accurate and reliable.
  • Zero Based Budgeting: It is one of the most famous technique of preparing budget. In this type of technique the company prepare their budget from zero level that means they did not consider any past years data. Organisation ake budget on the basis of their on assumptions and new researchers of environment.

Advantage: The technique is based on proactive approach,it make budget on the basis of analysing realistic data.

  • It helps the organisation to connect with business plans. This technique is focused on achieving organisational objective.

Disadvantage: It is time consuming process of preparing budget (Qamar, Khemta and Jamil, 2016).

  • This technique cannot be applicable on globally as not each entity star with initial level because they have prior commitment with their employees,and work.
  • Contingency budgeting:It includes preparing budget on the basis of estimated data,it will be prepare in short time period. Contingency level of a budget totally depands on the accuracy level of a budget. If the budget is 705 accurate then contingency budget will be prepare for 305.

Advantage: It will be easy and quick process of setting budget.

Disadvantage: It will be hard process for monitoring when setting budget by using this technique.

Activity Based Budgeting: Budgets are prepared on the basis of how much cost an organisation provides for operating each activity. This technique is useful only when each area of functional department is separated and cost of every unit can be calculated easily.

Advantage: Organisation can easily allocate their resources.

  • Most expensive activity can be identified easily and it will help in reducing cost.

Disadvantage: This technique of budgeting is not applicable on service based industries where services are flexible to provide their customers.

Cash limited budgeting: In this technique budget is prepared on the basis of set limit of cash. Organisation decided a fixed amount of cash and all decisions are taken on the basis of decided limit.

Advantage: This technique is useful to eliminate wastage activities from future.

Disadvantage: This technique is not useful for large scale of organisations because they need to change their technologies and innovate new product to stay in competitive market for that they need to change their budget policies and need more cash capital,they cannot make budget by using fixed amount of cash.

The management team of Rowlinson Knitwear can be choose incremental budgeting technique for preparing budget because their organisation was established since 1935 and they can make budget plan after analysing past year data. This will be help them to analysis their mistakes and they will make plans to overcome their errors. 

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2.3 Develop and justify a budget for an area of management responsibility

Budget is the process of anticipating revenue and expenses for a particular point of time. It is required to evaluate and monitor on a continuous basis for utilising it properly. It is a tool used in internal management of organisation.

Budget is the process of anticipating revenue and expenses for a particular point of time. It is required to evaluate and monitor on a continuous basis for utilising it properly. It is a tool used in internal management of organisation. It is a statement which shows expected income and expenses of an entity at fixed period of time Budget plays vital role in enhancing performance level of the company. It helps in optimum utilization of resources. Every organisation needs to prepare a budget in order to achieve their organisations goals.

Advantages of budget:
Manager uses budget for taking decisions and preparing future plans. Budget is helpful for analysing performance of workforce of the organisation. It helps to set target for all departments of an organisation and to control extra expenditures of the business entity. It is a tool which is used to analysing risk and then make plans which helps the organisation to minimize the risk.

Disadvantages of budget:
Preparing a budget is very time consuming and expensive process for organisations as it take hugs time to collect and analysing data, from various sources. Preparing a budget is risk taking process because the overall investment decision is based on budgets and it is not necessary that situations are always in favourable for organisation. Budget is not based on realistic activities, managers only consider cash related transactions in budget they ignore other sources which affects on the organisations success strategy

Conflicts arises between manager of different departments due to allocation of expenses among different department.

Budget

£ 20000

Catering

£ 3500

Health And Safety

£ 4500

Insurance

£ 2200

Equipment

£ 1600

Transport services

£ 1950

Maintenance work

£ 1600

Availability of Playground

£ 3750

Parking

£ 900

2.4 Analyse the factors that impact on budget management

Budget management: It is the process of managing and controlling all the activities which helps to achieving budget goals of the organisation .Companies uses various tools to manage their budget plan in their running organisation. The main purpose of managing budget is to achieve target within the limit mention in budgeted plan. There are various factors which affect managing the budget these are as follows:

  • Performance level: Success of a budgeting plan is totally depends on the performance level of an organisation. At the stage of under performance the company could not achieve its target at predetermined time limit. They could not use their resources efficiently. At over performance condition organisations expenses of organisation will be increase.
  • Conflicts: Company could not achieve their budget target if their will be conflicts arise between workforce of the organisation. Business entity surely affected if there will be any misunderstandings and conflicts arise with third parties which includes customers,financial institutions,public etc. There will be chances of strike and lockout and then overall budgets process effect adversely.
  • Market conditions: Managers of the company changes their budget plans after analysis market condition,if external environment are in favourable condition then it will be easy to cooperate with achieve budgeted goals but if customers preferences change and new technologies introduced then company will be change their plans to managing their budget

Leadership style: It is one of the essential factor which impact on budget. Leaders uses different styles which includes democratic,,coaching, authoritative to influence their workforce to help in achieving budgeted goals,if workforce does not like the style then it will adversely affect budget goals. 

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2.5 Specify corrective actions to be take in response to budgetary variance

Corrective actions are the set which for reducing the difference between the standard and actual. In relations to budgetary variance, some of the actions through which corrections can be made are as follows:

Reduce costs- If there occurs variances in budgetary variance then first step to be take in to reduce the costs. This is helpful in controlling the costs which can provide better control on the budget. By tracking the budget, unnecessary costs can be saved.

Reduce resource- This is about the management of resources which are acquired by the funds. It is very important to plan a budget. Therefore, Rowlinson Knitwear can estimate the budget for acquiring the required resources in order to reduce the variance.

Material usage- Every raw material has some budget and it should be utilised optimally. If the variance has occurred due to the wastage of raw materials then, it should be reduced.

2.6 Reporting procedures for authorising corrective actions to a budget

Budget for the area of activity for the full year and profiled for the year to date. When profiling the budget, planned expenditure patterns should be considered. For certain types of expenditure (particularly non-staff costs) it is likely that expenditure will peak and trough at particular points in the year

  • Actual expenditure to date
  • Future expenditure commitments
  • Balance of annual budget remaining. When actual expenditure and commitments together are compared to the full year budget, this will indicate the balance of budget remaining at the review point
  • Forecast outturn. This is the expected position against budget at the end of the year after taking into account all anticipated expenditure. The forecast outturn may not be equal to the original budget
  • Analysis and explanation of any positive or negative variances when comparing expenditure and forecast outturn to budget, together with a documented action plan in order to address adverse variances.

CONCLUSION

From the above report, it has been concluded that financial management is important to monitor the financial transactions of the company. There are techniques and methods which should be used in administering the financial resources. Furthermore, there are different approaches which should be used in order to have better control and tracking of financial transactions.

Read Also :- Applied Corporate Strategy Organization

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