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AS and A Level: Accounting & Financial Management
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- Marked by Teachers essays 4
Financial regulation protects investors, maintain orderly markets and promote financial stability. There are four main objectives of financial regulations. First is market confidence; this is to preserve confidence in the financial system in the UK. This is to guarantee that markets are fair, efficient and transparent and that individuals and companies have assurance in financial intermediaries and in the money supply. Another aim is financial stability. This is the contribution to the protection and improvement of the stability of the financial system. This is to maintain and raise understanding to the public of the financial system. They will be told of the benefits and risks of the different forms of financial transactions. Consumer protection is another financial regulation aim.
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Describe the key features of UK and EU nancial service legislation and regulation likely to inspire investor condence.
Regulatory bodies also inspire investors in the UK. There are many regulatory bodies including Financial Conduct Authority (FCA). FCA aim to make sure that financial markets work well so that consumers get a fair deal. This means that they ensure that the financial industry is run with honesty, first?s product customers with appropriate products and services and customers can trust that the firm has their best interests at heart. Secondly, Prudential Regulatory Authority (PRA) is another regulatory body. PRA was created as part of the Financial Services Act (FSA)
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An example of unethical practice was when financial institutions like bank and building societies mis-sold payment protection insurance (PPI). Banks devised an insurance product that was designed to not pay out due to the strict terms and conditions and began to force customers to buy the insurance when taking out loans, mortgages and credit cards. This was very unethical and the financial services were not taking any duty of care. The Financial Services Authority (FSA) then imposed fines to all banks and building societies who mis-sold PPI and were instructed the institutions to compensate their customers. Lloyds had to pay £9.8billion, Santander £500million and the Co-operative Bank £100million proving that they had to pay large sums of fines.
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Produce a report evaluating the relative significance of solvency and profitability ratios in identifying serious problems of business performance.
Also you can see if your business is performing successfully or is performing poorly in relative to the figures of another business. In addition, ratio analysis helps in trend analysis which involves comparing a single company over a period of time. And lastly, it can highlight important information in simple form quickly; businesses can explore their business performance by just looking at few numbers instead of reading the whole financial statement. The first ratio is the solvency ratio. This ratio will measure the ability of the business to settle its debts in the short term.
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Acid test ratio measures the ability for Alpha Ltd to pay its debts over a period of two or three months without requiring the sale of their stock. Formula: Acid test ratio = Current assets - Stock Current Liabilities = £75000 - £60000 £50000 = £15000 £50000 = 0.3:1 Alpha Ltd’s acid test ratio of 0.3:1 is very close to a typical Acid test ratio of 0.4:1. This means that Alpha Ltd are in a position to settle their short-term debts despite selling their stock.
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Justify a proposed comprehensive and integrated nancial service package that is appropriate for the financial needs of two customers at different life stages.
In addition to his overdraft he also has a student loan of £13,000. Once Ifter starts work he will be required to pay off is student loan as he will be earning a salary more than £21,000. To work out how much Ifter has to pay I took his salary of £25,000 and subtracted £21,000 which gave me £4,000. I then found out 9% of this which is £360 which I then divided by 12 to get a monthly payment of £30.
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Premium bonds can give the saver prizes from £25 to £1 million of tax free cash. However, this money doesn’t earn any interest but can be withdrawn at any given time with no penalties. You can enter online or on the phone if you are 16 or over and can invest anything from £100 to £50,000. People ages 17 to 22 can invest in premium bonds as it’s a better opportunity to win some extra cash that they can save. They could also use Direct ISA’s. An ISA is an individual saving account which allows individuals to hold cash, shares, and unit trusts free of tax on dividends, interest, and capital gains.
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5. Closing stock ? a business?s remaining stock at the end of the financial year. It includes finished products, raw materials or work in progress and is deducted from the period?s costs in the balance sheets. 6. Gross profit ? The difference between revenue and the cost of producing goods or services sold. It is sometimes expressed as a percentage. 7. Expenses ? money or costs incurred in a business?s efforts to generate revenue, representing the cost of doing business 8. Wages - a fixed regular payment earned for work or services, typically paid on a daily or weekly basis 9.
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However, budgets can also become a problem. Sometimes budgets can be inaccurate and unreasonable and can cause problems to a business. This is because if they are unrealistic the company are going to be over spending. In addition, if budgets are unrealistic it can unmotivated employees; this is because they will have to work hard to ensure they don?t go over the budgets, but this may be impossible and could lead to lots of stress. Nevertheless, if budgets are too high staff may spend up to budget.
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Nevertheless, once all the money is gone, they will not have any money to use in the event of an emergency. Sell assets The business could sell unused assets to gain cash. These assets could include machinery or equipment in which the business does not use. This is good for them to do as it is good business practice and they are making use of something they don?t need. In addition, they could rent out part of their property they no longer need which will allow them to gain money.
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Furthermore, if they do not control their budget it will also lead to an adverse variance and a decrease in profits. This is because, when businesses overspend than they budgeted for, their costs will go up and the profit will fall; they may even make losses. This means they wouldn?t be able to pay their monthly bills or declare dividends to their shareholders. Additionally, not keeping to the budget will affect other departments in the business. This is because if they overspend in one department they will need extra funds and this money may come from other departments.
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Acid test ratio measures the ability for Alpha Ltd. to pay its debts over a period of two or three months without requiring the sale of their stock. Formula: Acid test ratio = Current assets - Stock Current Liabilities = £75000 - £60000 £50000 = £15000 £50000 = 0.3:1 Alpha Ltd.’s acid test ratio of 0.3:1 is very close to a typical Acid test ratio of 0.4:1. This means that Alpha Ltd. are in a position to settle their short-term debts despite selling their stock.
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There are many internal stakeholders who will be interested in Alpha Ltd ratio analysis.2) Internal Stakeholders are anyone within the business such as managers, employees and shareholders. Managers will be interested in Alpha Ltd ratios because they can make use of business ratio to see if they are meeting their business objectives and using their resources effectively ; this will then allow them to highlight where they may need improving. In addition, employees will make use of the ratio to see if the business is stable and their jobs are safe.
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