Financial Decision Making

Level 6

Learning outcome 1: Understand the role of financial information and financial analysis in business risk assessment and decision-making.
1.1 Analyse the factors that guide and drive decision making in business.
1.2 Assess the significance of financial factors in business decision making.
1.3 Evaluate the characteristics of business risk that impact on financial and business decisions.

Learning outcome 2: Understand how financial statements and their structure aid business decision making.
2.1 Compare the accrual and cash flow approaches to accounting and financial reporting and the implications of each for business decision making.
2.2 Evaluate the structure and content of final accounts and their uses for business decision making.
2.3 Interpret financial information in balance sheets, income statements as well as sources and applications of funds statements.
2.4 Differentiate between financial decisions relating to capital expenditure and those relating to revenue expenditure.

Learning outcome 3: Be able to perform effective capital expenditure appraisal using range of techniques.
3.1 Appraise various sources of short-term and long-term financing for businesses.
3.2 Critically examine key factors affecting the choice of source of financing.
3.3 Evaluate various techniques used for appraising and making decisions regarding capital
expenditure.
3.4 Explain the possible benefits and drawbacks of off-balance sheet financing.

Learning outcome 4: Be able to evaluate how different ownership structures impact on financial performance.
4.1 Critically analyse the corporate governance, legal and regulatory environments of different business ownership structures.
4.2 Compare and contrast stakeholder interests of owners and managers in decision making.
4.3 Evaluate the significance of Return on capital
Employed (ROCE), Earnings Per Share (EPS) and other overall performance measures for the long¬term sustainability of businesses.
4.4 Differentiate between business ethics, governance

Scenario
After graduating, you worked as an investment banker, after a long illustrious career you have now retired.
Thanks to your background you obtained a job as a business columnist in a newspaper and you've been asked to write several feature articles.

Task 1

Instructions
Write an article in which you should
1. Examine the factors (both financial and non-financial) that drive decisions making in business,
2. Weigh up the business risks impacting on financial and business decisions
3. Explain the differences between the accrual and cash flow approaches in financial reporting, and how it might impact business decision making
4. Investigate techniques to manage cash flow

Task 2
Instructions
Write an illustrated example using Poundland (the data is attached below). You should:
1. Using the data provided concerning Poundland as an example, describe the sections of the income statement and the balance sheet.
2. Interpret the financial statements of Poundland
3. Assess the value of EPS, ROCE and other overall indicators for the sustainability of Poundland
4. Describe methods for Poundland to decide whether to invest or make capital expenditures
5. Provide examples of the types of capital expenditure and revenue expenditures that could be incurred by Poundland
6. Based on the data for Poundland, estimate its source of long-term financing and working capital financing
7. Looking at the balance sheet, weigh the pros and cons of off-balance sheet financing.

Task 3
Instructions
1. Draw a mind map of the main stakeholders, annotate it to identify contrasting interests between owners, managers and shareholders
2. Differentiate the governance, accounting ethics, legal and regulatory environments between organisations listed on the FTSE and non-listed Private Limited company.