ASSESSMENT SUBMISSION & DECLARATION

QUALIFICATION UNIT NUMBER AND TITLE

PEARSON BTEC HIGHER NATIONAL DIPLOMA IN BUSINESS (RQF) 05. MANAGEMENT ACCOUNTING (LEVEL 4)

STUDENT NAME ASSESSOR NAME

ABDULLAH WAQAS MAAM MEHREEN

DATE ISSUED COMPLETION DATE SUBMITTED ON

2/1/2019 2/1/2019

ASSIGNMENT TITLE MANAGEMENT ACCOUNTING PRINCIPLES

ASSESSMENT CRITERIA TASK NUMBER EVIDENCE PAGE NUMBER

PASS 1 TASK 1

PASS 2 TASK 1

PASS 3 TASK 2

PASS 4 TASK 3

PASS 5 TASK 4

MERIT 1 TASK 1

MERIT 2 TASK 2

MERIT 3 TASK 3

MERIT 4 TASK 4

DISTINCTION 1 TASK 1

DISTINCTION 2 TASK 2

DISTINCTION 3 TASK 3, TASK 4

PLAGIARISM

Plagiarism is a particular form of cheating. Plagiarism must be avoided at all costs and students who break the rules, however
innocently, may be penalised. It is your responsibility to ensure that you understand correct referencing practices. As a univer -
sity level student, you are expected to use appropriate references throughout and keep carefully detailed notes of all your
sources of materials for material you have used in your work, including any material downloaded from the Internet.
 LEARNER DECLARATION

I CERTIFY THAT THE ASSIGNMENT SUBMISSION IS ENTIRELY MY OWN WORK AND I FULLY UNDERSTAND THE CONSEQUENCES OF PLAGIARISM. I
UNDERSTAND THAT MAKING A FALSE DECLARATION IS A FORM OF MALPRACTICE.

STUDENT SIGNATURE: DATE:

TASK 1:
MANAGEMENT ACCOUNTING:

Management accounting unites accounting, finance and management with the business skills and
techniques which further helps in adding real value to the organization. It is concerned with sourc -
ing, analysis, communication and use of decision-relevant financial and non-financial information
in order to get the evaluation of performance in strategic, tactical and operational levels.

DIFFERENCE BETWEEN MANAGEMENT AND FINANCIAL ACCOUNTING

Managerial accounting is that branch of accounting used by internal users which records and re -
port both the financial and nonfinancial data and includes future and historic data. Also called as
managerial accounting which helps the organization to detail approaches and estimating, arranging
and controlling the everyday business operation of the organization. Whereas financial accounting
includes external clients with externally imposed rules. It records only objective historic financial
information. Financial accounting is more of a self-contained management.

MANAGEMENT ACCOUNTING SYSTEMS AS FOLLOWS:

JOB COSTING

A method of calculating the manufacturing cost for a specific job. It makes products according to
the customer demand which leads to maximum satisfaction.

ADVANTAGES

It has no storage cost as inventory is not maintained, and high prices are charged as the product leads to
maximum satisfaction. Employees are motivated and have maximum satisfaction as they have to work
on a new job every time and there is no repetition of work.

DISADVANTAGES
However, the disadvantage of job costing is that there is no economies of scale and its time con -
suming and skilled labour is required. Hence it can be expensive. Different types of tools etc are
needed.

EXAMPLE: Job ABC incurred the following cost

Material £50

Labour £70
product £30

Admin £40

COST OF THE JOB

= 50+70+30+40. =£190

BUDGETING

Budgeting is the process in which detailed financial statements are prepared covering a provided
period of time in future. It is planning for the future in order to achieve strategic, tactical and oper -
ational objectives of the business.

ADVANTAGES

Budgeting helps us in planning orientation, reviewing profitability, reviewing assumptions, evalu -

ating performance and allocation of cash. It helps in decision making.

DISADVANTAGES

Budgeting requires a lot time and if the expected result is not achieved then the management
might blame the departments providing these services.

JUST IN TIME

Just in time is a strategy for stock control that brings material into the creation procedure, stockroom or
to the client in the nick of time to be utilized. The Just in Time method makes the development of mate-
rial into a particular area at the required time, for example just before the material is required in the as-
sembling procedure

ADVANTAGES

With a faster turnaround of stock, you don’t need as much warehouse or storage space to store goods.
There is a waste reduction, which helps insaving money by preventing investment in unnecessary stock,
and reducing the need to replace old stock, and it has smaller investment.
DISADVANTAGES

There is risk of running out of stocks, having to rely on the timeliness of suppliers for each order puts
you at risk of delaying your customers’ receipt of goods. More planning is required.

TASK 1: (B)

MANAGEMENT ACCOUNT INFORMATION

Management accounting information is focused at internal managers and decision makers. Its intended
use is to provide financial data relevant to a manager's operations in an effort to make sound business
decisions. Management accounting information comes in the form of financial ratios, budget forecasts,
variance analysis and cost accounting.

CHARACTERISTICS OF GOOD INFO:

ACCURATE

Information should be fair and free from bias. It should not have any arithmetical and grammatical er-
rors. Information comes directly or in written form likely to be more reliable than it comes from indi-
rectly (from hands to hands) or verbally which can be later retracted.

COMPLETE

Accuracy of information is just not enough. It should also be complete which means facts and figures
should not be missing or concealed. Telling the truth but not wholly is of no use.

COST EFFECTIVE

Information should be analysed for its benefits against the cost of obtaining it. business context, it is not
worthwhile to spend money on information that even cannot recover its costs leading to loss each time
that information is obtained. In other contexts, such as hospitals it would be useful to get information
even it has no financial benefits due to the nature of the business and expectations of society from it.

USER TARGETED

Information should be communicated in the style, format, detail and complexity which address the
needs of users of the information. Example senior managers need brief reports which enable them to
understand the position and performance of the business at a glance, while operational managers need
detailed information which enable them to make day to day decisions.

RELEVENT

Information should be communicated to the right person. It means person which has some control over
decisions expected to come out from obtaining the information.

AUTHORITATIVE (RELIABLE)

Information should come from reliable source. It depends on qualifications and experience and past per-
formance of the person communicating the information.
TIMELY

Information should be communicated in time so that receiver of the information has enough time to de-
cide appropriate actions based on the information received. Information which communicates details of
the past events earlier in time is of less importance than recently issued information like newspapers.
What is timely information depending on situation to situation. Selection of appropriate channel of com-
munication is key skill to achieve.

EASY TO USE

Information should be understandable to the users. Style, sentence structure and jargons should be
used keeping the receiver in mind. If report is targeted to new-comer in the field, then it should explain
technical jargons used in the report.

MANAGERIAL ACCOUNTING REPORTS:

BUDGETING

Spending reports are archives that present a solitary organization's different spending plans at some
random time. Instances of spending plans incorporate tasks, generation, deals and advertising. The ob-
jective of a spending report is to decide how much every territory is given in assets and how well the di-
visions utilize their offered assets to achieve the objectives of the business. A spending report just
demonstrates the organization's approaching and active income and costs, so the report does not un-
cover how well the organization is getting along - just how it spends its accessible cash.

ADVANTAGES & DISADVANTAGES

Increases the probability that the company goals and objectives will be achieved, helps in defining
strengths and weaknesses on which the entity can concentrate. Better allocation and understanding of
the responsibilities and objectives by the staff. However, staff may be demotivated, if the targets set are
too difficult or too easy to achieve, if they are made responsible for something outside their competence
or does not identify themselves with the targets. Planning is often seen as unnecessary additional work
and thus receive the lower priority. Lack of cooperation between departments or functions, which may
result into operational plans being in conflict.

MARGINAL COSTING

Marginal cost is the cost of making one extra unit and hence primarily focuses on variable costs and
treats fixed cost as period cost which is to be written off at once.

The negligible expense of an item "is its variable expense". This is regularly taken to be: immediate work,
coordinate material, coordinate costs and the variable piece of overheads. (Giles, 1996). It is the book-
keeping framework in which variable expenses are charged to cost units and settled expenses of the pe-
riod are discounted in full against the total commitment
ADVANTAGES & DISADVANTAGES

It keeps the strange convey forward in stock valuation of some extent of current years settled overhead.
It disposes of huge adjusts left in overhead control accounts which demonstrate the trouble of finding
out an exact overhead recuperation rate. Ordinary costing frameworks likewise apply overhead under
typical working volume and this demonstrates no preferred standpoint is picked up by minor costing.

ABSORPTION COSTING

Absorption costing also known as ‘full costing’ is a conventional technique of ascertaining cost. It is the
practice of charging all costs both variable and fixed to operations, processes and products. It is the old-
est and widely used technique of ascertaining cost. Under this technique of costing, cost is made up of
direct costs plus overhead costs absorbed on some suitable basis.

ADVANTAGES AND DISADVANATGES

It will show correct profit calculation in case where production is done to have sales in future (e.g., sea-
sonal sales) as compared to variable costing. It helps to conform with accrual and matching concepts
which require matching cost with revenue for a particular period. It avoids the separation of costs into
fixed and variable elements which cannot be done easily and accurately. However, Difficulty in compari-
son and control of cost. Not helpful in managerial decisions, Apportionment of fixed overheads by arbi-
trary methods.

FINANCIAL STATEMENT

Financial statements are the reports around an association's money related outcomes, budgetary condi-
tion, and money streams. To explore the points of interest of certain business exchanges.

ADVANTAGES & DISADVANTAGES

There are some distinct advantages of performing a financial statement analysis. If the financial state-
ments have been audited and an unqualified opinion has been issued by the auditor, additional comfort
can be gained that the financial statements have been prepared in accordance with Generally Accepted
Accounting Principles (“GAAP”) – that the accounting rules have been followed and that there is a good
basis for performing the analysis. A financial statement analysis also provides a historical and factual
perspective. The results will represent facts - not assumptions or future projections. However, While the
apparent disadvantages of a financial statement analysis are few, there are disadvantages of performing
ONLY a financial statement analysis. If a company is operating in an ever- changing or highly competitive
environment, its past results, as reflected in historical financial statements, may not be an indicator of
future results. Analysis of historical financial statements will not identify operational issues or inefficien-
cies or any favourable or unfavourable changes in the environment. There are other non-GAAP mea-
sures (such as EBITDA – earnings before interest, taxes, depreciation and amortization), which are ex-
cluded from audited financial statements but may provide valuable insights into the financial results of a
business.

VARIENCE REPORT & PROFIT RECONCILLATION

In associated estimations, there are unmistakable sorts of change examination. In endeavour organiza-
tion, contrast examination keeps up authority over an endeavour's expenses by checking masterminded
versus genuine costs. It is investigation of difference or ANOVA, incorporates looking over the differenti-
ation between two figures. It is a mechanical assembly associated with money related and operational
data that intends to perceive and choose the purpose behind the change.

TASK 2:

Marginal costing: Income statement

£ £

Sales [1500 x 50] £75000

Less: cost of sales

Opening stock -

+ production [2000 x £15] £30,000

i
- Closing stock [ 500 x £15] (7500) (£22,500)

52,500

Less: non-production variable cost

Selling, distribution & administration (£11,250)

[ 15% x £75,000]

à Contribution £41,250

Less: total fixed cost

Production cost £15,000

Selling, distribution & administration £10,000 (£25,000)

à Total profit £16,250

Absorption costing: income statement

£ £

Sales [1500x £50] £75,000

Less: cost of sales

Opening stock -

+ production [2000 x £20] £40,000

-Closing stock [500 x £20] (£10,000) (£30,000)

£45,000

à -Under absorption (£500)

à Gross profit £40,000

Less: non-production cost

Selling, distribution and administration [VC] £11,250

[15% x £75,000]

Selling, distribution and administration [FC] £10,000(£21,250)

à Profit for the year £18,750

Income statement using: fifo

£ £
Sales £10,800

Less: cost of sales

Opening stock £1,350

+ purchases £4,900

-Closing stock. (£1,250) (£5000)

à Gross profit £5,800

Income statement using: lifo

£ £

Sales £10,800

Less: cost of sales

Opening stock [300 x £4.5] £1350

+ Purchase £4,900

- Closing stock (£1,180) (£5,070)

à Gross profit £5,730

FIFO DATE PURCHASE SALES BALANCE

UNITS £ £ UNITS £ £ UNITS £ £

1 MAY - - - - - - 300 4.5 -

2ND MAY - - - 200 4.5 100 4.5

7TH MAY 500 4.8 - - - 100 4.5

500 4.8

13TH MAY - - - 100 4.5 200 4.8

300 4.8
20TH MAY 500 5 - - - 200 4.8

500. 5

28TH MAY - - - 200 4.8 250 5 £1,250

250 5
 LIFO DATE PURCHASE SALES BALANCE

UNITS £ £ UNITS £ £ UNITS £ £

1ST MAY - - - - - - 300 4.5

2ND MAY - - - 200 4.5 100 4.5

7TH MAY 500 4.8 - - - 100 4.5

500 4.8

13TH MAY - - - 400 4.8 100 4.5

100 4.8

20TH MAY 500 5 - - - 100 4.5

100 4.8

500 5

28TH MAY - - - 450 5 100 4.5 450

100 4.8 480

50 5 250

£1,180

VARIENCES:

Sales price variance: [actual quantity x actual price] – [actual quantity x budgeted price]

à[ 196,000 x £58.5] – [196,000 x £60] = £294,000 ADVERSE

Sales volume variance: [actual quantity - budgeted quantity] x budgeted price/unit

à[ 196,000 – 180,000] x £13.89 = £222,240 FAVOURABLE

Material price: [actual quantity x budgeted price] – [actual quantity x actual price]

àMaterial A: [ 202,000 x £10] – [ 202,000 x £10.2] = £40,400 ADVERSE

àMaterial B: [ 196,000 x £3] – [ 196,000 x £2.90] = £196,000 FAVOURABLE

Material usage: [actual output x budgeted KG x budgeted price] – [actual quantity x budgeted price]

àMaterial A: [ 196,000 x 1KG x £10] – [202,000 x £10] =£60,000 ADVERSE

àMaterial B: [196,000 x 1 KG x £3] – [ 196,000 x £3] = £0

Labour rate: [actual hours x budgeted rate] – [ actual hours x actual rate]

à[ 193,000 £8] – [193,000 x £8.40] = £77,200 ADVERSE

Labour efficiency: [actual output x budgeted hour rate x budgeted rate] – [actual hour x budgeted
rate]

à[196,000 x 1HOUR X £8] – [ 193,000 x £8] = 24,000 FAVOURABLE

Variable overhead cost: [ actual hours x budgeted rate] – [ actual hours x actual rate]

à[193,000 x £4] – [ 193,000 x £4] = £0

Variable overhead efficiency: [ actual output x budgeted hours x budgeted rate] – [actual hours x bud-
geted rate]

à[196,000 x 1HR x £4] – [ 193,000 x £4] = £12,000 FAVOURABLE

Fixed cost expenditure: [budget – actual]

à[3800,000 – 3700,000] = £100,000 FAVOURABLE

RECONCILIATION OF PROFITS

(£)
BUDGETED PROFIT: 2500,000

ADD: FAVOURABLE VARIANCE:

Sales volume 222,240

Material B price 19,600

Laborefficiency 24,000

Variable overhead efficiency 12,000

Fixed cost expenditure 100,000

LESS: ADVERSE VARIANCE

Sales price 29,4000

Material price A 40,400

Material usage A 60,000

Labour rate 77,200

ACTUAL PROFIT: £ 2406,240

WORKING:

(1) Sales= £ 11466,000

Units=. 196000 units
Actual price = 11466000 = £ 58.5
196000
Budget
Sales= £ 10,800,000
Units= 180,000
Price= £ 10800,000 = £ 60
180,000

(2) Budgeted profits = £ 2500,000

Units= 180,000
Per unit= £ 2500,000 = £ 13.89
180,800

REPORT:

Sales price variance: The sales price variance shows the effect on profit of selling at a different price
from that expected. As in the numerical above, the sales price variance is adverse due to the unplanned
reduction in actual price as compared to standard price; which can be done to attract more customers,
as our sales increased from 180,000 units to 196,000 units.
Sales volume variance: The sales volume variance calculates the effect on profit of the actual sales vol-
ume being different from the budgeted. The effect on profit will differ depending upon whether a mar-
ginal or absorption costing system is being used. As in the numerical above, the sales volume variance is
favourable due to the additional demand attracted by reduction in price

Material price variance: The difference between the standard cost and the actual cost for the actual
quantity of material purchased. As in the numerical above the material price variance, material (A) is ad-
verse, because the budgeted price was less than the actual price, that happens when unforeseen dis-
counts are received or change in suppliers. Whereas material (B) is favourable due to increase in prices,
material quality is changed or the change in quantity discounts.

Material Usage Variance: The difference between the actual quantity of material utilized during a period
and the standard consumption of material for the level of output achieved. As in the numerical above
the material usage variance is adverse, because the actual output was more than the actual quantity, it
happens when there is wastage of material, or the material is damaged or any error in allocating mate-
rial to job.

Labour Rate Variance: The difference between the actual labour rate paid and the standard rate multi-
plied by the number of actual hours worked. As in the numerical above the labour rate variance is ad-
verse, because the budgeted rate was £8 and the actualratewas £8.40, that occurs due to increase in the
wage rate, or when they used skilled labour who charge more.

Labour Efficiency Variance: The difference between the he actual labour hours used to produce an item
and the standard amount that should have been used, multiplied by the standard labourrate.As in the
numerical above labour efficiency variance is favourablebecause actual output was more than then the
actual hours labour had worked, that is because labour is motivated, so they produce more outputs, us-
ing skilled labour with better machines and technology which reduces their work time.

Variable overhead cost variance: The actual and budgeted hours worked, which are then applied to the
standard variable overhead rate per hour. As in the numerical above the variable overhead cost variance
is nil
Variable overhead efficiency variance: The difference between the actual and budgeted hours worked,
which are then applied to the standard variable overhead rate per hour. As in the numerical above the
variable overhead efficiency variance is favourable because the actual output was more than the actual
hours, that is because labour is working more efficiently and is more motivated.
Fixed cost expenditure variance: The difference between the actual and expected fixed overheads. As in
the numerical above the fixed cost expenditure variance is favourable because budget was 3800,000
and the actual cost was 3700,000. Because maybe the labour force is working overtime.

TASK 3)
BUDEGTEING:
A budget is a quantitative arrangement utilized as a device for choosing which exercises will be decided
for a future time period. A budget plan is set for a specific goal that has to be achieved in future.
ADVANTAGES:
Increases the probability that the company goals and objectives will be achieved, helps in defining
strengths and weaknesses on which the entity can concentrate. Better allocation and understanding of
the responsibilities and objectives by the staff.

DISADVANTAGES:

However, staff may be demotivated, if the targets set are too difficult or too easy to achieve, if they are
made responsible for something outside their competence or does not identify themselves with the tar-
gets. Planning is often seen as unnecessary additional work and thus receive the lower priority. Lack of
cooperation between departments or functions, which may result into operational plans being in con-
flict.

TYPES OF BUDGET

FINANCIAL BUDGET:

It also includes cash budget, Cash budgeting (cash planning) is a critical part of budgeting because it is
essential to have the right sums of cash available at the right times. Financial budget the effects of the fi-
nancial choices of the firm. It is an arrangement including a budgeted balance sheet, which demon-
strates the impacts of planned operations and capital investments on resources, liabilities, and values.

OPERATIONAL BUDGET:

Operating budgets are focused around facilitating income. Operating budgets are generally based on
projected quarterly performance. (Charles T.Horngren, 2005). An operating budget is a mix of known
costs, expected future expenses, and determined wage through the span of a year.

ZERO BASED BUDGET:

Zero-based budgeting (ZBB) is a method of budgeting in which all expenses must be justified for each
new period. The process of zero-based budgeting starts from a "zero base," and every function within an
organization is analysed for its needs and costs.

ACTIVITY BASED BUDGET:

Activity-based budgeting is a top-down budgeting approach that determines the amount of inputs re-
quired to support the targets or outputs set by the company. For example, a company sets an output
target of $100 million in revenues. The company will need to first determine the activities that need to
be undertaken to meet the sales target, and then find out the costs of carrying out these activities.

BUDGETARY CONTROL PROCESS:

According to H.S. Wheldon, “By budgetary control, every items of actual cost is so controlled by vigilant
supervision as to make it conform, as nearly as possible, to the predetermined standards. It has resulted
in the elimination of waste and excess costs in every suitable instance where budgetary control has been
properly instituted.”
BEYOND BUDGETING PROCESS:

This budgetingmodel proposes that traditional budgeting should be abandoned and should be used
rather than fixed annual budgets.

DRAWBACKS OF BUDGETING

Budgets are time consuming and expensive. Budgeting fails to focus on shareholder value, it protects
rather than reduce cost. Budgeting prevents innovations and risks and focus on sale targets rather than
customer satisfaction, they are reinforcing a dependency culture and budgeting leads to unethical be-
haviour.

BEYOND BUDGETING PRINCIPLE:

Use adaptive management processes for marketing decisions rather than trying decisions making to con-
formity with rigid annual budgets. Traditional budgets tie managers to predetermine actions which are
not responsive to current situations. Managers should instead plan on more adoptive basis, motivated
against world class benchmark competitors and previous period. Move towards developed networks
rather than centralized hierarchies encourage a culture of personal responsibility by delegating decision
making and performance accountability to line managers.

CHANGING BUDGETARY SYSTEMS:

An organisation wishing to change its budgetary practises will face a number of difficulties that can be
the resistance by employee that means employees will be familiar with current system, new system
threatens to alter existing power relationship. Loss of control that means senior might may take time to
adopt to new systems and its implications. The other difficulties can be cost of implementation, training
and lack of accounting info.

Product Y Product Z

Material A £156 =30kg £78 =15kg

£5.20 £5.20
Material B £54 = 30kg £72 = 40kg
£1.80 £1.80
Labour manufacturing £11.25 = 2.5 hours £11.25 = 2.5 hours
£4.50 £4.50
Labour packaging £20 = 5hours £20 = 5 hours
£4 £4

Resources – wastage (original 100%)

 • Existing => 112.5% ->30kg

110% -> 29.3kg

Increase in material price – 5%

• Material A => £5.20 x 1.05 = £5.46

• Material B => £1.80 x 1.05 = £1.89

Increase in labour rate – 8%

• Manufacturing => £4.50 x 1.08 = £4.86

• Packaging => £4 x 1.08 = £4.32

Production budget: (sales unit + closing stock unit – opening stock units)

• Product Y => 1,700,000 + 200,000 – 190,000 = 1,710,000

• Product Z => 950,000 + 125,000 – 150,000 = 925000

Total production = 2635000 units

Material B

• Material usage: Production units x kg/unit

• Product Y => 1,710,000 x 30 kg = 51,300,000

• Product Z => 925,000 x 40kg = 37,000,000

Total material usage = 88,300,000

• Material purchase: (material usage + closing stock kg – opening stock kg)

Quantity budget

• 88,300,000 + 90,000 – 95,000 = 88,295,000 kg

• Material purchase: (material purchase quantity kg x price per kg)

Cost budget £

• 88295000 x £1.89 = £166,877,550

• Manufacturing hour budget: (production units x hour/unit)

• Product Y => 1710,000 x 2.5 hours = 4275000 hours

• Product Z => 925000 x 2.5 hours = 2312500 hours

Total hours = 6587500 hours

Task 4) Define how management accounting is used for selling financial problems.
PESTEL ANALYSIS:

A PESTEL analysis is an acronym for a tool used to identify the macro external forces facing an organisa-
tion. The letters stand for Political, Economic, Social, Technological, Environmental and Legal. Depending
on the organisation, it can be reduced to PEST or some areas can be added i.e. International.

ADVANTAGES AND DISADVANTAGES:

* Organization is ready to maintain a strategic distance from the cost that used to recuperate the trou-
bles.

* Pest examination additionally will enhance the nature of employees.

* PEST analysis is collecting huge measures of applicable information from the correct sources turns into
somewhat of an issue, particularly since a large portion of the relevant information must be gathered
from outer offices which makes them expensive.

* The fundamental favourable position that can be acquired from the Pest investigation is the challenges
and issue that may be happen in future will be suspect effectively.

SWOT ANALYSIS:

SWOT Analysis is a useful technique for understanding your Strengths and Weaknesses, and for identify-
ing both the Opportunities open to you and the Threats you face. (Fallon, March 28, 2017 07:39 am
EST). SWOT analysis is to help organizations develop a full awareness of all the factors involved in a deci-
sion

ADVANTAGES AND DISADVANTAGES:

* It generates new ideas that utilizes the SWOT examination will be four records: qualities, shortcom-
ings, dangers and openings.

* Organizations utilize the SWOT examination to structure vital arranging meetings to generate new
ideas, which encourage the assessment of business options.

* Extra investigation is required to assess the effect of the individual qualities, shortcomings, openings
and dangers on the goal of the review.

RATIO ANALYSIS:

are considered as a powerful tool among the various tools of financial statement analysis. It facilitates a
company in ascertaining its financial health i.e., its financial performance whether it is gaining profits or
suffering losses.

Liquidity Ratio of Ratio Analysis, facilitates to identify whether the company has enough capability to
meet short term obligations/requirements. Current and QuickRatios reveal the comparison between
Current Assets and Current Liabilities suggest for necessary decision making.

The Profitability Ratios like Gross Profit Ratio, Net Profit Ratio and Operating Ratio give a picture of prof-
itability position of the concern.
 Long term solvency and the leverage ratios such as Debt-Equity Ratio and Interest CoverageRatio con-
vey a firm ability to meet the interest cost repayments schedules of its long-term obligations and show
the proportions of debt and equity in financing of the firms.

Activity Ratiossuch as Inventory Turn Over Ratio, Debtor Turnover Ratio, WorkingCapital Turnover Ratio
measure the efficiency with which the resources of a firm have been employed.

KEY PERFORMANCE INDICATORS:

The purpose of using it is to focus attention on the tasks and processes that management has deter-
mined are most important for making progress towards declared goals and targets. It is a measurable
value that demonstrates how effectively a company is achieving key business objectives. (Parmenter,
n.d.). A key performance indicator is a business metric for evaluating factors that are crucial to the suc-
cess of an organization.

BALANCED SCORECARD:

The scorecard allowed companies to track financial results while monitoring progress in building the ca-
pabilities needed for growth. The tool was not intended to be a replacement for financial measures but
rather a complement and that’s just how most companies treated it. (Robert Kaplan, July–August 2007 ).
The balanced scorecard revolutionized conventional thinking about performance metrics. When Kaplan
and Norton first introduced the concept, in 1992, companies were busy transforming themselves to
compete in the world of information, their ability to exploit intangible assets was becoming more deci-
sive than their ability to manage physical assets.

BALANCED SCORECARD ADVANTAGES:

* The first advantage of using the balanced scorecard method is that by looking at four aspects of a com-
pany's performance, you really do get a balanced view of company performance.

* The balanced scorecard gives you a full picture as to whether your company is meeting its objectives.

* A company is doing well financially, it may be that customer satisfaction is down, employee training is
inadequate, or that the processes are outdated.

BALANCED SCORECARD DISADVANTAGES:

* First, the balanced scorecard takes forethought. It is not a tool you can just think up one night to solve
a problem. Instead, it is recommended that you hold a meeting to plan out what goals you would like to
see your company reach in above destinations.

* Once you have clearly stated objectives, you can then begin to break down these objectives in what
you will need, financially, to bring these objectives to fruition.

BENCH MARKETING:

Benchmarking includes searching externally outside a specific business, association, industry, area or na-
tion to look at how others accomplish their execution levels, and to comprehend the procedures they
utilize. (Sravani, n.d.). The target of benchmarking is to comprehend and assess the present position of a
business or association in connection to best practice and to recognize ranges and methods for execu-
tion change.

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