Custom Dissertations | Accounting Dissertations – Accounting Financial Management

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Executive Summary

The report exclusively deals with the Accounting and Financial Management. The report has been divided into two broad types. The first part deals with the calculations regarding the payback period, average accounting return and break-even analysis. This part of the report also explains the various aspects of the same. The next half of the report is based on the calculations related with the Horizontal and vertical analysis. Further, it also explains the different patterns and trends present in the Income Statement and Balance Sheet based on the calculations done.

Introduction

The primary objective of accounting in any business is to help that business make the maximum profit after tax. Unless accounting makes its full contribution to that objective, its cost cannot be justified. In today’s industry, one of the ways accounting pays for itself is to help management to control operations. Another way is to help management utilize its working capital to the greatest possible advantage.

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Every business has important financial concerns and its success or failure depends in a large part on the quality of its financial decisions. Effective financial decision making requires an understanding of the goal(s) of the firm. The widely accepted objective of the firm is to maximize the value of firm for its owners, i.e. to maximize shareholders wealth (MAYER, R. et al, 2005).

Hence, the accounting and financial management has become an integral part of business in the twenty-first century. The concept of payback period, average accounting return, breakeven analysis, trend analysis and vertical analysis are very important for any business, big or small.

Discussion

2.1 Problem 1

A company is considering a capital project costing £ 400,000. The sales forecasts, together with the forecast expenditure are shown below:

Table 1: Sales and Expenditure Forecast

Year

Sales (£)

Cost of Sales (£)

Other variable costs (£)

Fixed costs except depreciation (£)

Depreciation (£)

1

200,000

60,000

20,000

30,000

100,000

2

300,000

90,000

30,000

30,000

100,000

3

400,000

120,000

40,000

30,000

100,000

4

300,000

90,000

30,000

30,000

100,000

1,200,000

360,000

120,000

120,000

400,000

The above problem can be formulated in the form of Income Statement as below:

Table 2: Income Statement of the Company

Years

1

2

3

4

Sales

200,000

300,000

400,000

300,000

Cost of Sales

(60,000)

(90,000)

(120,000)

(90,000)

Gross Profit:

140,000

210,000

280,000

210,000

Variable Cost

(20,000)

(30,000)

(40,000)

(30,000)

Earnings before Fixed Charges:

120,000

180,000

240,000

180,000

Fixed Cost

(30,000)

(30,000)

(30,000)

(30,000)

Earnings before tax and depreciation:

90,000

150,000

210,000

150,000

Depreciation

(100,000)

(100,000)

(100,000)

(100,000)

Net Income:

-10,000

50,000

110,000

50,000

2.1.1 Calculation of Payback period for the Project

The payback period for the project is the length of time to get your money back (FABOZZI and PETERSON,

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