Analysis Of Accounting, Finance, Ratios For Panini LTD - Essay.

About Panini LTD

This report is divided into two parts (Task). Task 1 covers the accounting and finance department with their function and the sources of finance for PANINI LTD. Task 2 covers the calculation of ratios for the years 2018 and 2019 and individual analysis of each ratio.

Panini Ltd is an Italian-based company. It was started by the Panini brothers in 1961. The headquarters of Panini ltd is in Modena, Italy. Panini Ltd deals in books, trading cards, comics, magazines, voice-activated software, Video Game Manufacturing, etc. (NML 2022).

The accounting department is a cost of doing business. Accounting department record all transaction related to cost accounting, employment, financial statement creation, supplier payments, and other expenses. It recodes the information of the company's goods and services offered or manufactured, as well as all of the company's commercial costs. These records make it easier for management to track the company's revenue and expenses. It maintains statutory compliance and offers quantitative financial information to investors and the government for use in company decisions.

Financial accounting is a tool that aids in the measurement, processing, and transmission of a company's or organization's financial data with the shareholders, investors, and others. Financial accounting records all the day-to-day financial transactions and summarises and analyzes the financial transactions. 

• It systematically documents all of the company's financial transactions in accordance with national government and financial accounting requirements.
• It recording the financial transactions and the team member of financial accounting must examine and summaries the entire transaction, as well as the financial statement, in order to demonstrate the right financial condition of the company.
• They discuss the company's financial statement with shareholders, investors, creditors, debtors, and money lenders.
• The external auditor examines the books for a certain year and ensures that taxes are paid in accordance with the law. This means that the financial accounting staff must comply with the law. 

Management accounting is the process of gathering, evaluating, and collecting information to make a report about a company's activities and finances. The manager of the firm receives the managerial report. Accounting for management assists managers in making financial and non-financial decisions based on data.

• Management accounting offers crucial information for strategic planning.
• It changed the data to meet the needs of financial choices.
• It aids in the analysis of data for improved planning and decision-making.
• Management accounting is a tool for conveying management strategies across the business, above, below, and forth.

Management accounting assists in the conversion of supplied targets and plans into precise objectives that must be completed by a certain deadline, and it guarantees that these goals are accomplished in a prompt and effective manner. (ddegjust.ac 2022)

In tax accounting, the tax function is very essential. It gives advice on commercial transactions to the company. It reports externally to stakeholders and offers a clear knowledge of the transaction's implications and effects.

• It ensures tax compliance and develops a tax plan for businesses.
• It entails determining important performance indicators for your tax strategy.
• It unifies tax accounting under a single framework.
• It aids in the improvement of company operations.
• It protects a company's tax-paying interests.
• It helps the firm with tax planning, forecasting, and tax optimization.
• It aids in the development of tax risk monitoring and measurement systems, as well as tax forecasting systems.
• Simplifying tax accounting operations in order to achieve tighter closure deadlines.
• It aids in the preparation of a tax return.

Auditing is a procedure in which the auditor examines all financial records, transactions, and compliances to determine whether the company's financial statement is accurate and fair.

• The auditing function assists in determining the correctness of the company's financial accounts.
• It examines the concept of going concerned, often known as firm solvency.
• It investigates all of the company's commercial transactions in order to discover fraud.
• It is also critical to the company's compliance with its legal requirements.
• It examines the company's environmentally and socially responsible activities.

A company's finance department is a department that controls all financial activities of the company. It is in charge of collecting and managing cash on behalf of the firm and keeps track of all expenditures and receivables. The department keeps track of income and expenditures and ensures that the company works efficiently with little downtime. In addition to the conventional functions of processing payroll, earnings, and expenditure, the finance department does economic analysis to improve crucial corporate initiatives.

It gives the company's management critical information about the financial situation. It also serves as a support structure for managing the company's equity. The finance department is critical to cash flow management since it ensures that money is available in a timely and appropriate manner for the business's activities. 

The investment function shows how investment and interest rates are related. Different formulations of a single application investment function are known as investment functions.

Functions of the Accounting and Finance Departments

Function:

• It necessitates taking chances. It indicates that in order to cover this risk and gain a reward, enterprises, businessmen, and owners of capital will want a return on their investment.
• It affects the company's investment choice by taking into account investment and interest rates.
• In order to boost productivity, it may be necessary to invest in new technology, equipment. 

The financial function assists the company in managing its finances and provides decision-making guidance. The finance role involves decisions regarding whether or not a firm should engage additional in fixed assets. It is largely focused on a company's capital expenditure allocation over time, as well as related issues such as dividend distribution and investment finance.

• The finance department is responsible for ensuring that all accounting information is correct and updated on a daily basis. Managers may not provide a good judgments when they get the data which is not good or reliable or current.
• It demonstrates how much the company pays its suppliers and if these expenditures are within control, allowing the company to generate a profit.
• It examines the company's revenue in order for management to make better judgments.
• It tracks cash flow and, as a result, forecasts cash flow and the amount of cash necessary to run the firm.
• It also aids in the evaluation of the company's performance.  

The dividend choice is selecting how much profit after taxes should be given as dividends to the shareholders and investors of the company and how much profit should be maintained in the firm for future growth. Dividends are normally paid in cash, but they can also be distributed in the form of new stock shares.

• It is the obligation of the finance management to determine an optimal dividend policy that optimizes the firm's market value.
• It refers to a portion of a company's earnings that is allocated to shareholders and investors.

The amount calculated by subtracting current obligations from current assets is known as working capital. It is utilized to meet all of the company's short-term costs. It's also used to pay the company's short-term debt, cover day-to-day operations, and buy merchandise.

• The finance department uses it to handle the company's short-term liabilities. If the company has enough operating capital, it can continue to pay its employees and distributors and also meet other obligations.
• Working capital can assist management in avoiding cash flow issues that could put your company in danger.
• Working capital refers to a company's ability to manage its daily costs, such as inventories, current liabilities, and receivables. 

Funds come from several sources and are employed in company activity. Medium-term finances mean the finance which is provided for more than a year but less than five years.

For expansion reasons, the following funds are available:

• Bootstrapping refers to the capacity to extend your present condition by utilizing existing resources such as your personal savings money.
• Traditional bank loans: Banks may provide small company owners a wide range of lending choices, including short-term and long-term finance for almost any undertaking.
• Angel investors are the investors who provide loan or finance to start-up companies in return for some shares in a company. 

The corporation obtains short-term financing through selling fixed assets, sale of stock, debt collection, owner capital, and retained earnings,

External sources of funding include banking institutions, bank borrowings, preference shares, debentures, certificates of deposit, overdraft, lease financing, corporate debt, loan from friends and family, trade credit, and government grants. This is available in a medium-sized version (BBC Bitesize 2022)

Gross profit means the profit which is generated after the dividing cost of sales from the total revenue. Cost of sale includes labor cost, material cost, and other direct cost. Positive gross profit indicates the healthy financial condition of the company (Nariswari, & Nugraha 2020).

As per the analysis, the performance of the company in 2019 is negative as compared to 2018. In 2018 the gross profit ratio was 19.54% but in 2019 it was -23.10%.

Due to covid 19, the turnover of Panini Ltd has Error! Hyperlink reference is not valid. dropped to £32083752 in 2019 from £85348759 in 2018.

Panini ltd has required to focus on its sales margin and utilize its assets as much as possible. 

The operating profit margin indicates the efficiency of the company during its core operation. Operating profit is calculated by dividing total revenue from the operating profit. The operating expenses include overhead expenses.

When comparing the operating margin from 2018, the company’s performance in the year 2019 is negative. It indicates that the company is spending high expenses to generate revenue. The operating profit margin in 2018 was 15.35% and in 2019 it was -32.28%.

The operating profit margin in 2019 is falling due to high administrative expenses and a big downfall in turnover of the company.

Panini ltd has been required to improve its turnover and cut the administrative expenses for the future. 

Return on capital employed (ROCE) is a financial metric that helps managers assess the company's performance. The Return on Capital Employed (ROCE) metric measures how well a firm utilizes its working capital to create high profits.

Sources of Finance for Panini LTD

ROCE of Panini ltd is negative in the year 2019 as compared to 2018, which means the performance of the company is negative in 2019. In the year 2018, the ROCE ratio was 18.75%, whereas in 2019 the ROCE is -22.98%.

The ROCE is changing in 2019 because of negative operating profit. The total current assets are also reduced in 2019 as compared to 2018.

To improve ROCE, the company is required to reduce costs or increase the turnover. They are also required to monitor the area where excess costs are used. 

The current ratio is used to determine the liquidity of the company as well as the ability of the company to pay its short-term debt by using the current assets of the company If the current ratio is more than 1.5, the corporation has sufficient cash and current assets to pay all of its short-term obligations (Irman & Purwati 2020).

The current ratio is 1.75 times in 2019 which is lower as compared to 2.06 times in 2018. It indicates that the performance of the company is good as per the ideal current ratio but when we compare it with 2018 then the performance of the company in 2018 is better.

The current ratio of 2019 is decreased due to decreases in current assets.

The current ratio is improved if the company pays off its creditors and short-term loans as soon as possible. 

The quick ratio is a calculation that determines a company's capacity to pay down short-term debt using liquid assets. Inventories aren't included as assets. If the quick ratio is more than 1 it indicates that financial condition is better.

In 2019, the quick ratio is 1.73 times, a decrease from 2.04 times in 2018. It implies that the company's performance is good according to the ideal quick ratio, but when compared to 2018, the company's performance in 2018 is superior.

The reason for the decrease in the quick ratio is the decrease in the stock of the company.

The company has been required to improve its sales and inventory turnover which helps them to improve in quick ratio.

Inventory turnover shows how much time is taken by the company to sell its inventory in a particular period. A higher inventory turnover ratio indicates a better performance of the company (Abdurrasik 2020).

In 2018, the inventory turnover ratio was 10.15, compared to 6.22 in 2019. The inventory ratio declined in 2019, indicating that the company's performance in 2019 was not much better than in 2018.

The shift in inventory turnover ratio is due to changes in client preferences and advancements in existing technologies. Because of covid 19, the company's sales have reduced in 2019.

Only by increasing firm sales, lowering product prices, focusing on top-selling items, and eliminating safety stock and old stock can the turnover ratio be improved.

Debtor collection period means the period in which all trade receivable is collected. When a corporation collects all of its debt in the shortest amount of time, it is more efficient for the company (Abdulazeez, Fatima & Abdulrahaman 2018).

Ratio Calculation and Analysis

As per the analysis of the debtor collection period, we found that the debtor collection period is 1123.10 days in 2019 which is almost 2 times of 2018 which was 558.19 days. It indicates that the performance of the company is not efficient in the collection of debt from the debtor.

The reason for changes in the debtor collection period is a change in cash volume and net revenue of the company.

There are 3 ways to improve the debtor collection period:

• Work out payment arrangements with your vendors.
• a modification in payment terms
• Early payment discounts are available. 

Creditors Payment Period is a word that refers to the amount of time when current liabilities keep unpaid. It determines how long it takes a corporation to collect its obligations with trade suppliers on average. A higher collection period is good for the company.

The creditor collection period of Panini Ltd in 2019 is 687.18 days which is higher than the 514.28 days in 2018. A higher collection period boosts the performance of the company.

The reason for changes in the creditor collection period is a change in trade payable and purchase of the company.

There is no requirement for improvement in a creditor collection period because the company is already in a good position.

Conclusion

The first section of the report offers detailed information and explanations of the accounting and finance departments, as well as their respective functions. The second section of the report contains all of the general observations on the company's ratio performance. In 2019, panini LTD's profitability ratio is negative, and the debtor's collection period is 1123.10 days. Panini Ltd's overall performance in 2019 has been unfavorable. 

References

Abdulazeez, D.A., Baba, N.A., Fatima, K.R. and Abdulrahaman, Y., 2018. Working capital management and financial performance of listed conglomerate companies in Nigeria.

Abdurrasik, N.A., 2020. The effect of inventory turnover on the financial performance of retail supermarkets in Malaysia (Doctoral dissertation, Universiti Teknologi MARA, Sabah).

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Capitalise.com, 2022. 6 ways to reduce your creditor / debtor days. [online] Capitalise.com. Available at: <https://capitalise.com/gb/insights/6-ways-to-reduce-creditor-debtor-days> [Accessed 29 April 2022].

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Nariswari, T.N. and Nugraha, N.M., 2020. Profit growth: impact of net profit margin, gross profit margin, and total assets turnover. International Journal of Finance & Banking Studies (2147-4486), 9(4), pp.87-96.

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