In finance, the manager take organizational decisions

Introduction

Finance is the process of collecting funds and invest profitable projects. In finance, the manager take organizational decisions. An organization can collect money from mainly two sources such as internal and external the internal sources of funds are owners' capital, share, reserve funds, and distributable profit of the organization (Arcand et al., 2012). external sources of finance are bank loans, purchases in credit, bonds, etc. the manager of the organization should keep in mind the cost of capital because high capital cost make pressure on the organization. here the manager also finds out the profitable project as well as considering risk. TT is a large retail organization. ratio and capital budgeting are presented in this report.

Question 1

Calcutale ratios of TT

Calculate the gross profit ratio

Calculate the net profit ratio

Calculate the Operating profit margin

Calculate the return on assets ratio

Calculate Return on equity ratio

Calculate current ratio

Calculate the quick ratio

 Calculating Gearing ratio 

Calculate gearing ratio

Calculate gearing ratio

Calculate the assets turnover ratio

Calculate the inventory turnover ratio

Analysis of the ratios of TT organization

The ratio is the method of the organization here the company finds out the comparative results between one account to others accounts. In ratio there is some standard value of the ratio, mainly the organization evaluates the performance of the organization based on the standard value (Scaglione,2016). The standard value is not fixed. the value is different from organization to organization. TT is the largest supermarket organization in the UK market. the analysis of the organization is discussed below:

Gross profit ratio

Gross profit ratio is the ratio where the organization calculates the ratio based on net sales against gross profit. The organization calculatesthe ratio for measuring the profitability of the organization (Novy-Marx, 2013). the standard value of the gross profit ratio is 20% to 30% here in this organization gross profit ratio is 15.79% and 21.5% for 20X1 and 20X2 respectively. So the profitability of 20X2 is good but 20X1 is not well because it is not cover the standard value of gross profit.

Net profit ratio

Here the organization measures the net profit against sales. this is also an important profitability ratio (Heikal, et al., 2014). The standard value of the net profit ratio is 10% to 20% of the organization. the net profit ratio of the organization is 2.11% and 7% for 20X1 and 20X2 respectively. So none of the years could not cover the ratio of the organization. so the organization does not in a good position in the market. the organization should increase net profit.

Return on asset ratio

The organization's return on assets is not in a good position. Here the organization finds out the effective use of assets against total assets. Return on assets is very low for the organization. the organization should take some steps for good maintenance of assets of this organization.

Current ratio

Current ratio measure the ability to solve short-term loan of the organization. the standard value of the current ratio is 2:1. Here means the organization's £2 current assets against £1 current liabilities (Pratamaand Erawati,2014). The organization's current ratio is 1.29:1 for 20X1 and 1.65: 1 for 20X2. So the organization should increase the current assets in both years because the actual ratio doesn’t cover the standard value.

Quick ratio

Quick ratio determine the ability of the organization to solve quickly the current liabilities of the organization. the standard value of the quick ratio is 1:1 . in this organization quick ratio is .71: 1 in 20X1 and 1.025: 1 in 20X2. The 20X2 is good because the ratio covers the standard value, on the other hand, the 20X1 doesn’t cover the standard value.

Gearing ratio

Here the organization determines the total debt of the organization against total assets (Öztürkand Karabulut, 2018). Others gearing also determine the total debt against the total equity of the organization. the standard value of the gearing ratio is 25% to 50%. The organization's debt assets gearing is good but debt gearing is not satisfied. Because debt is high than the standard value of the organization.

Finally, the organization should increase its performance of the organization. the organization some ratio is good but some are very low so the organization should improve its performance of the organization.

Key advantages of the automated bookkeeping system of TT

Accounting and finance are hard for the organization. finance is related to the decision-making process on the other hand accounting's main task is to keep the account in daily transactions. Nowadays every organization keeps its account with automated bookkeeping software. The software keeps account very first and accurately (Fernandezand Aman, 2018). TT is a retail supermarket in the UK. The employee wants to set up automated accounting software in the organization. the key advantages of the automated bookkeeping system are discussed

Easer extract transaction and fast transfer

By automated bookkeeping system TT organization will fast enter the transaction and transfer quickly (O'Leary,2017). The organizational productivity increased. The organization when ensuring productibility the organization can ensure the profitability of the organization.

Cloud storage

Automated bookkeeping has huge storage to keep data. So the organization can be kept all data in one place. for the organization's cost decrease and ultimately the organization to ensure profitability as well as business growth of the organization.

Save time

The software saves time for the employee. Because the software can be done a huge task at one time that’s why to save the time of the employee and ensure the profitability of the organization.

Flexibility

By one software the organization can be done huge work of the organization. not only huge tasks but also different types of calculations the organization can be performed in the organization.

Less employee

The automated bookkeeping system can be able to do huge work that’s why the organization don’t need many employees. Here the software help to keep cost and increase the profit of the organization.

Safety and better integration

The organization can keep the data safely in the storage of the organization. the organization also makes better integration with internal and external of the organization. the organization can transfer the account from one department to another department easily with this software which helps to better integration.

Help to decision making

The organization help the organization to take a decision. In the company, the financial manager needs to take different types of decisions many times (Peters et al., 2016). The software will be provided the value able information for the manager to decide on the different types of projects for this organization.

Higher productivity

The automated bookkeeping system ensure the higher productibility of the organization. the software can be able to work at a time huge work and the organization need fewer employees for the task. So the software ensures higher productivity in the organization. that help to increase profit as well as the business growth of the organization.

Question 2

Calculate the accounting rate of return

The rate of return is the tool of capital budgeting and it is a very easy method of capital budgeting. Here the financial manager can know the outcome rate from the investment (Jordà et val., 2019). The techniques calculate the return based on the profit of the organization.

Accounting rate of return=

In this calculation, the formula for Average net profit   =

                                    Average investment =                              

Accounting rate of return for software A

Average net profit    =  = 1500

Average investment = = 20000

Accounting rate of return   =

                                                = 7.5%

Accounting rate of return for software B

Average net profit    = 1700

Average investment = = 25000

Accounting rate of return   =

                                                = 6%

Calculation of payback period

The payback period is the way of capital budgeting. Here the organization wants to see how many years need the organization to back investment. This method is not considering time or money (Gorshkov et al., 2018). Here also count the organizational cash flow rather than the net profit of the organization.

The payback period of Software A and Software B is calculated below:

Software A

Payback period= Full year+

= 2+×12

= 2+ 6

                        = 2 years and 6 months

Software B

Payback period        =

                                    =

                                    = 2.94 × 12 months

                                    = 2 years and 11 months

Calculation of net present value

Net present value is the modern capital budgeting of finance. Here considering the time value of money (Chisholm et al., 2016). So time value is an important issue of finance that’s why the net present value is an important technique of capital budgeting.

Software A

NPV    = Total present value – Initial cash flow

            = £43775.31- £40000

            = £3775.31

Software B

NPV    =CF_t – CF₀

            = 1700× – 50000

            = (1700 × 3.1698654) – 50000

            = £5388.7713

Advise TT on the decision of choosing any software package

Three distinct methods are shown in the above computation of the two projects that TT Ltd. has chosen (average rate of return, payback period, and net present value). The management may quickly decide which project to invest in based on the calculation.

According to the accounting rate of return approach, the project with the highest average profit is chosen by the organization, while projects with smaller profits are disregarded. If more than one project needs to be chosen, then all the projects must be chosen, which offer a rate over the average net profit. According to the calculations above, software A has an average return rate of 7.5%, whereas software B has a return rate of 6%. According to this methodology, TT Ltd. should choose software A for their upcoming investment as they must choose one of the two projects (Lee et al., 2015). The project that offers the investment cash ahead of schedule is regarded as the best one, according to the payback period technique. This suggests that the company will recoverits initial capital investment quickly and turn a profit. Software A in the aforementioned example has a payback period of 2 years and 6 months, but software B has a payback period of 2 years and 11 months. As a result of project A's shorter payback period, TT Ltd. should prioritize project A above project B following this method.

Another extremely successful strategy is the net present value, where the project that offers the highest value is chosen, and the projects that offer less or no value are eliminated. In the example above, it can be observed that Software A has a net present value of £3775.31 whereas Software B has a net present value of £5388.77. This shows that the second project creates greater present value than the software. Therefore, Software B must be chosen following this method.

According to the study of the aforementioned three calculations, the first two methods point to Software A while NPV points to B due to its higher present value (Gillingham andPalmer, 2014). Because Software B's accounting rate of return and payback time is not significantly higher than those of Software A and because it generates greater present value with a higher margin, it can be inferred from the analysis of the approaches that TT Ltd. should select Software B.

The way FinTech can be benefited

The usage of fintech is expanding as a result of its tremendous advantages as the globe modernizes and depends more heavily on technology. An estimated 91.5 billion dollars would be spent on fintech in 2021, a 20% increase from 2020. The advantages are covered below.

Allow accessing wider resources

2020, the next year. The advantages are covered below:

Permit greater resource access: The FinTech organization creates cutting-edge ecosystems that assist company organizations in continuously and most effectively accepting payments for goods and services. As a result, FinTech aids in the organization's growth and serves as a key growth engine for the organization.

Optimizing the procedure of business

According to a survey, companies that employ financial services had a revenue rise that was three times higher than that of the competition. Today, embracing FinTech is considerably simpler since small businesses can simply integrate it into their operations without needing to make large investments.

Better rate of retention for the organization

A company may provide clients with personalized services by utilizing fintech technology (Zingales, 2015). According to research, 18% of FinTech customers returned within 7 days, and 12% did so within 30 days. These numbers are much higher than the comparable averages for all verticals, which are 15% and 8%

Question 3

Advantages and disadvantages of the different approaches to budgeting that could be used by TT

Three capital budgeting are used in this report. All techniques are important to calculate the capital budgeting of the organization. but all are some advantages and disadvantages of the techniques.

The organization can take the organizational capital budgeting by using the tools. All tools are not useful for the organization. the tools use based on organizational position (Rahman, 2020). If the organization wants to calculate first capital budgeting the organization can be used use the rate of return or payback period. And also can prepare the rate of return of the organization.

The problems that can be caused by organizational slack

Organizational slack, often known as budgetary slack, refers toproduced by management in a budget so that the likelihood of real performance exceeding anticipated performance is enhanced. The management often uses one of two approaches to do this: either they grossly underestimate the organization's revenue or income, or they exaggerate its costs. A company like TT Ltd (Marlinand Geiger, 2015). encounters several issues due to organizational or financial slackness, including:

Uncertainty arose in the predicted outcome

As a result of management's under- or overestimation of revenues or expenses, there is uncertainty in the prediction of that uncertainty, which makes it difficult for the organization to launch a new product because it is unable to forecast the product's potential sales or expenses.

Imbalance in the information supply

Because of this method, two parties have contradictory knowledge, posing a significant difficulty. As a result, lower-level managers may believe that they have exceeded the objective for this year and may not work as hard as they should, causing the organization to suffer in the long run.

Claim rewards

Because low-level managers are unaware of the plan and financial slack concerns, they believe their aim has been met. As a result, when they are pushed to take on extra tasks, they expect a reward from the organization since they believe they work hard. They are disappointed if they are not rewarded by the organization.

Main sources of debt finance of TT

Debt is the source outside of the organization. the assets of the organization have owned the people are not in the organizational people i9s called debt. The organization needs to collect funds from outside of the organization. for that, the organization needs to pay the interest of the organization. It is fairly usual for most organizations to borrow money from numerous sources (Mokhovaand Zinecker,2013). In this case, TT Ltd. has several debt financing options, including non-banking cash flow, loans from various financial institutions, family and friends and family, bond issues, and so on. There are mainly two debt sources which are discussed below:

Bank loan

Bank loan is the common debt of the organization. TT organization collects loans from the bank. The organization can be collected loans from banks short term and long-term. The bank charges interest for a loan. This is called the capital cost of the organization. These financing solutions provide the organization with the ability to lend money at a reasonable interest rate, which is often between 4% and 13%. TT Ltd will also benefit from the fact that asking for a bank loan is a lot faster than choices, which might take 7 to 10 working days. If TT Ltd.'s project fails, it may be difficult to break out of the debt cycle. As a result, this strategy might be troublesome. But with the huge loan, companies drive on the risk because the organization has to pay interest for a bank loan.

Brand

The brand is the long-term loan paper. The organization can be issued bonds for collecting funds for the long term. Inboard the organization has to pay more than it collects. Usually, the interest rate of the board is high because they are a debt of the organization (Lemma, 2015). Bondholders do not have the right to vote on organizational decisions, therefore TT Ltd. is free to behave as it sees proper. Increases in an organization's earnings per share increase shareholder profits. Another concern is that the corporation must strictly comply with the regulations of interest payments, which would be difficult for a company like TT Ltd.

Conclusion

fiance means the activities of collecting funds and finding out the profitable project of the organization. mainly fiance work in the decision-making of the organization. in this report, calculate the ratio, and some capital budgeting of the organization. here the TT organization take financial decisions based on calculation techniques. Finance is the heart of the TT organization.

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