INTRODUCTION
Financial information refers to anything that is relevant to the financial performance and activities of the organizations. The finance manager collects the information with the help of financial reports and statements in order to cover particular aspects of organization’s finances such as profitability and cash flow. The key purpose of financial information is to understand the overall financial cash flow, position and operation. In addition, the manager use financial information to take the decisions related to investments, credit, tax, operational and product as well as service. P&L statement, Balance sheet, cash flow statement etc., are common examples of financial information. Apart from this, the aim of current report will be assessment of fundamentals of business finance in context of 7 Seas Onboard buffet restaurant. The service portfolio of this organization includes hot and cold starters, desserts, main dishes, desserts and cheese, delicious appetisers, on DFDS Seaways Ferryrouts. This report will highlight the evaluation of financial position of the chosen business with the help of several ratios
Struggling with complex finance topics? Our expert team can provide reliable Assignment Help, covering ratio analysis, stakeholder motives, and financial decision-making. With clear explanations and practical examples, we ensure your business finance assignments are accurate, well-structured, and submitted on time for top academic results.
MAIN BODY
Motives of the stakeholders
Stakeholders are crucial part of the organization because they play crucial role in making the potential decisions for growth and success of the company. Stakeholders have potential interest in the financial information of the organization from which they make effective decisions accordingly. Additionally, government, DFDS Seaways, investors, banks and financial institution as well as suppliers of raw materials are major stakeholders of 7 seas Onboard restaurant and they have significant motives in its financial information.
Government (HMRC)
HM revenue and customs (HMRC) is department of the UK that is accountable for regulating wages, taxes, child benefits and other factors of financial industry. For the evaluation of tax in effective way the higher authorities like HMRC have significant interest in the financial information of the companies (Atrill, Peter and McLaney, 2018).
DFDS Seaways
DFDS Seaways have significant emphasis on determine the profitability and liquidity position of 7 Seas Onboard. This stakeholder determine the financial position of the chosen business to assess its competency to pay rent.
Raw material’s suppliers
Raw material’s suppliers also have significant interest in the financial information of the business because from this they easily determine whether they are undertaking credit sales of not (Barth, Li and McClure, 2023). The motive of Suppliers of 7 seas Onboard is to ensure the period of long-term contract.
Potential investors
The investors of the organization are likely to understand the financial position of the business because from this they can make their investments. The potential investors of the chosen business also assess the capital structure of selected organization because it helps in exploring their risks within the business.
Banks and financial institutions
Banks and financial institutions are major stakeholders of 7Seas Onboard and they have significant interest in understanding its financial positions. With the help of this, the chosen organization can take decisions related to sanctioning of loan.
Perseverance and characteristics of good financial information
Collecting and evaluating information relating finance is beneficial for the organizations because it helps in perceiving particular details in the structure in the economic terms and eliminates situations of complexity in order to manage the finance in effective way. The purposes of collecting financial information are:
Business decisions
For making the decisions related to finance it is important for the companies to collect the financial information in proper manner (Du et al, 2020). With the help of accurate and reliable financial information the finance manager of 7 Seas Onboard buffet can evaluate cash flow and then make the decisions related to investment accordingly.
Business growth
With the help of financial information the organization can determine whether they are growing or not in terms of profitability or revenue. Financial information is assisting the chosen business to understand whether it is growing, stagnant or shrinking.
Forecasting future
Financial information aids the business in determining trends in the financial statements over years which leads to forecasting the future outcomes. With the help of effective information the chosen organization is easily forecasting the growth and return prospect which helps in making potential decisions (Byjus, 2024).
Financial analysis
If the organizations have accurate and consistent financial information then they can easily evaluate in effective manner (Kadoya and Khan, 2020). The financial manager of selected business is accountable to provide the financial information to all the stakeholders from that they make decisions accordingly which results in enhancing efficiency and growth.
Characteristics of financial information
Relevance, reliability, verifiability, understandability, timeliness, comparability, etc., are significant characteristics of financial information.
Relevance
In the context of finance, relevance is considered as one of the common characteristics that assist managers and other stakeholders to make informed decisions. Having relevancy of financial information is essential because it aids in determining past events and make forecasting about future events which leads to address issues and increased profits.
Reliability
It is crucial for the companies to have reliable information because it indicates their resources, transactions and financial assets in effective and efficient way (Mio et al, 2020). 7 seas Onboard is measuring the relevancy of its financial information through completeness, neutrality etc.
Verifiability
To make reliable and accurate financial forecasting, the chosen organization requires ensuring whether its financial information is verifiable or not.
Understandability
It is important for the companies to record the financial information in accurate and reliable from which stakeholders and other people can easily understand their reports (Monciardini, Mähönen and Tsagas, 2020). If the financial information is properly understandable then stakeholders can make informed decisions quickly.
Timeliness
This characteristic includes how quickly financial information is accessible to the professionals (Yarovaya et al, 2022). If information reaches quickly and speedily to the stakeholders and others then they are able to make decisions timely and effectively.
Comparability
Comparability is significant part of the financial information because it aids professionals to differentiate and evaluate financial reports that aid effective decisions.
Ratio analysis
Profitability ratio analysis
|
Particulars |
Formula |
YEAR |
||||
|
2019 |
2020 |
2021 |
2022 |
2023 |
||
|
Gross Profit |
-21 |
-60 |
485 |
709 |
873 |
|
|
Net profit |
-102 |
-165 |
172 |
280 |
366 |
|
|
Sales revenue |
232 |
406 |
893 |
1140 |
1553 |
|
|
Earnings before interest and tax or operating profit |
-121 |
-200 |
255 |
404 |
523 |
|
|
Cost of investment |
0 |
0 |
121 |
0 |
20 |
|
|
GP ratio |
Gross profit / sales * 100 |
-9% |
-15% |
54% |
62% |
56% |
|
NP ratio |
Net profit / sales * 100 |
-44% |
-41% |
19% |
25% |
24% |
|
Operating profit ratio |
EBIT / net sales |
-52% |
-49% |
29% |
35% |
34% |
|
Return on Investment |
Net income / Cost of investment |
0 |
0 |
7.38 |
0 |
57.65 |
Gross profit ratio: This helps to indicate the competency of the business to manage the overall cost of production (Sagan et al, 2020). After analyzing ratio, 7 Seas Onboard can implement an effective strategy to reduce costs and improve profits.
Net profit ratio: The net profit of the chosen business continuously declined so it needs to emphasize on implementing effective strategies and providing high-quality of food services in order to attract more customers.
Operating ratio: The operation profit of 7 Seas Onboard are improving as compared to previous years which indicates a profitability position.
Return on investment: In the beginning year, 7 Seas Onboard not generate a return on investment but in 2021 it earned 7.38%.
Liquidity ratio analysis
|
Particulars |
Formula |
YEAR |
|||||||
|
2019 |
2020 |
2021 |
2022 |
2023 |
|||||
|
Current assets |
1047 |
1695 |
3562 |
3154 |
2950 |
||||
|
Current liabilities |
1191 |
1912 |
3580 |
1723 |
1696 |
||||
|
Inventory |
6 |
14 |
8 |
7 |
6 |
||||
|
Prepaid expenses |
22 |
57 |
2 |
1 |
4 |
||||
|
Quick assets |
397 |
1624 |
3552 |
3146 |
2940 |
||||
|
Current ratio |
Current assets / current liabilities |
0.88 |
0.89 |
0.99 |
1.83 |
1.74 |
|||
|
Quick ratio |
Current assets - (stock + prepaid expenses) |
0.00 |
0.85 |
0.99 |
1.83 |
1.73 |
|||
Current ratio: This ratio represents the capacity of the organization in paying its liability over assets (Sharif and Naghavi, 2020). The current ratio of 7 Seas Onboard rapidly increases which means it has the capacity to pay all liabilities.
Quick ratio: The quick ratio of chosen business also increased since 2019 which means it also has competency to pay liabilities except inventories.
Solvency ratio analysis
|
Particulars |
Formula |
YEAR |
|||||
|
2019 |
2020 |
2021 |
2022 |
2023 |
|||
|
Long-term debt |
132 |
113 |
8 |
338 |
320 |
||
|
Shareholder's equity |
1392 |
1627 |
2085 |
3535 |
3534 |
||
|
Total Assets |
2715 |
3652 |
5673 |
5596 |
5550 |
||
|
Debt ratio |
Long-term debt / shareholders’ equity |
0.09 |
0.07 |
0.00 |
0.10 |
0.09 |
|
|
Equity ratio |
Shareholder equity/ Total assets |
051 |
0.45 |
0.37 |
0.63 |
0.64 |
|
Debt ratio: From the evaluation it has been determined that, the cost of chosen business increases it means it uses less debt amount for buying the assets.
Equity ratio: The equity ratio of the chosen business is high which denotes that firm is using huge capital to purchase assets.
Efficiency ratio analysis
|
Particulars |
Formula |
YEAR |
|||||||
|
2019 |
2020 |
2021 |
2022 |
2023 |
|||||
|
Turnover or sales revenue |
232 |
406 |
893 |
1140 |
1553 |
||||
|
Average total assets |
2715 |
3184 |
4662 |
5635 |
5573 |
||||
|
Total assets turnover ratio |
Net sales/ average total asset |
0.09 |
0.13 |
0.19 |
0.20 |
0.28 |
|||
Return on equity: ROE of 7 Seas Onboard continue increases that represents optimum use of owner’s equity.
Limitations of ration analysis
Ratio analysis is considered as one of the critical financial tool that are used by the organizations to assess their performance by evaluating key financial ratios relevant to liquidity, profitability, efficiency and solvency. Ratio analysis is significant because it aids in providing insights into an organization’s capability in order to meet short and long-term obligations as well as generate profits (Weetman, 2019). 7 Seas Onboard is also emphasizes on calculating the ratios because it enables performance evaluation, comparison with industry benchmarks and determination of financial trends. However, with importance ratio analysis also has several limitations which directly impact the overall efficiency and operation of the business.
Historical information
The financial information which is used to evaluate are always relies on actual past outcomes that are unconfined by the organizations. Therefore, it is not necessarily that ratio analysis demonstrates future organization’s performance in an effective way (Vitolla, Raimo and Rubino, 2020).
Inflationary effects
Usually, information relevant to finance are released occasionally and there are time changes between each release. If inflation has happened in amongst periods then the real prices are not imitated in the financial reports
Modifications in policies and procedures
If the organization has modified its financial procedures and policies this may expressively affect the overall report (Soong et al, 2020). For ratio analysis, the financial metrics are changed and financial outcomes verified before the change.
Operational Changes
An organization may suggestively changes overall arrangement from its supply chain to selling of products. At the time when massive operational changes are happen then contrast of financial metrics after modifications that leads to deceptive conclusion about future prospects and organization’s performance.
Manipulations of financial statements
Ratio analysis always relied on information that is reported by the organization in its financial statements (Vaidya, 2024). This information may be influenced by the organization’s administration to report better outcomes than its real performance.
CONCLUSION
From the above report it has been summarized that financial information helps the managers to take the decisions related to credit, tax, investment, goods and services etc. The stakeholders of the organization have significant interest in the financial information that helps them to make effective decisions. The finance manager uses financial information because it helps in making effective business decisions, business growth, forecasting future and financial analysis. The characteristics of financial information are relevance, reliability verifiability, timeliness and comparability. The chosen organization can assess its financial information with the help of profitability, liquidity, solvency, efficiency, total asset turnover etc. Ratio analysis helps in offering insights into the organization’s competency to meet obligations. With advantages, the ration analysis has various limitations such as historical information, inflationary effects, and modifications in accounting policies, operational changes and manipulations of financial statements.
REFERENCES
Books and Journals
Atrill, Peter and McLaney, E. J. 2018. Financial accounting for decision makers. 9th ed. Harlow: Pearson
Barth, M.E., Li, K. and McClure, C.G., 2023. Evolution in value relevance of accounting information. The Accounting Review, 98(1), pp.1-28.
Du, E., Terrer, C., Pellegrini, A.F., Ahlström, A., van Lissa, C.J., Zhao, X., Xia, N., Wu, X. and Jackson, R.B., 2020. Global patterns of terrestrial nitrogen and phosphorus limitation. Nature Geoscience, 13(3), pp.221-226.
Kadoya, Y. and Khan, M.S.R., 2020. Financial literacy in Japan: New evidence using financial knowledge, behavior, and attitude. Sustainability, 12(9), p.3683.
Mio, C., Fasan, M., Marcon, C. and Panfilo, S., 2020. The predictive ability of legitimacy and agency theory after the implementation of the EU directive on non‐financial information. Corporate Social Responsibility and Environmental Management, 27(6), pp.2465-2476.
Monciardini, D., Mähönen, J.T. and Tsagas, G., 2020. Rethinking non-financial reporting: A blueprint for structural regulatory changes. Accounting, Economics, and Law: A Convivium, 10(2), p.20200092.
Sagan, V., Peterson, K.T., Maimaitijiang, M., Sidike, P., Sloan, J., Greeling, B.A., Maalouf, S. and Adams, C., 2020. Monitoring inland water quality using remote sensing: Potential and limitations of spectral indices, bio-optical simulations, machine learning, and cloud computing. Earth-Science Reviews, 205, p.103187.
Sharif, S.P. and Naghavi, N., 2020. Family financial socialization, financial information seeking behavior and financial literacy among youth. Asia-Pacific Journal of Business Administration, 12(2), pp.163-181.
Soong, J.L., Fuchslueger, L., Marañon‐Jimenez, S., Torn, M.S., Janssens, I.A., Penuelas, J. and Richter, A., 2020. Microbial carbon limitation: The need for integrating microorganisms into our understanding of ecosystem carbon cycling. Global change biology, 26(4), pp.1953-1961.
Tristram, M., Banday, A.J., Górski, K.M., Keskitalo, R., Lawrence, C.R., Andersen, K.J., Barreiro, R.B., Borrill, J., Colombo, L.P.L., Eriksen, H.K. and Fernandez-Cobos, R., 2022. Improved limits on the tensor-to-scalar ratio using BICEP and P lanck data. Physical Review D, 105(8), p.083524.
Vitolla, F., Raimo, N. and Rubino, M., 2020. Board characteristics and integrated reporting quality: An agency theory perspective. Corporate Social Responsibility and Environmental Management, 27(2), pp.1152-1163.
Weetman, P. 2019. Financial accounting. 8th ed. Harlow: Pearson
Yarovaya, L., Brzeszczyński, J., Goodell, J.W., Lucey, B. and Lau, C.K.M., 2022. Rethinking financial contagion: Information transmission mechanism during the COVID-19 pandemic. Journal of International Financial Markets, Institutions and Money, 79, p.101589.
Online
Vaidya, D, 2024. Limitations of ratio analysis. Online. Available through: < https://www.wallstreetmojo.com/ratio-analysis-limitations#:~:text=1.,account%20for%20external%20economic%20factors >
Byjus, 2024. Purpose of financial information. 2023. Online available through: < https://byjus.com/commerce/uses-and-importance-of-financial-statements/>
4 Years | PhD
