Financial Accounting Assignment: Operational Performance Of Havells

Question

Task: Learning Outcome 1: Critically analyze Financial Accounting Principles to measure Bottom Line impact and develop competitive strategies.
Learning Outcome 2: Critique the relevance and significance of Budgeting Process, Techniques and Methods in driving Organizational Performance.
Learning Outcome 3: Evaluate Financial Statements and business performance using Ratio Analysis.
Learning Outcome 4: Evaluate investment appraisal techniques to support decision-making.
Read the following Scenario, and prepare a Formal Business & Financial Review Document with the guidelines provided.
Scenario: The assignment below will help you to review and critically analyze financial and management accounting principles, relevant accounting standards/ policies applicable, and apply the relevant knowledge to evaluate the overall business and management performance based on the current complex, volatile, competitive and uncertain economic/business environment by reviewing associated implications [restructuring, consolidation, acquisitions, cost management strategies, disposal of assets, innovations & impact of technological disruptions] within businesses.
You are required to present a Formal Business & Financial Review Document, that would contain a neatly designed Table of Contents to capture the main and sub-topics in an orderly fashion which should adhere to meeting the assessment standards and grading criterion:
Introduction: Choose a public listed corporation related to your current work domain or preferred area of industry. This section would require candidates to research relevant financial and operational performance of the organization by reviewing and understanding the 2018 & 2019 Annual Reports on the chosen public listed company. The facts and figures will help the candidate to answer below questions, and validate with relevant statistics.
1. Introduce the organization in the context of prevailing macro-economic and business conditions by discussing the vision, mission and planning strategies of the company. For the chosen organizations, evaluate the financial and operational performance of the organizations by reviewing the company’s annual performance (read through annual report for the year 2018 and 2019 for specific data) [10 marks].
2. Application of theory to practice [600 to 1200 words]: Demonstrate meaningful understanding of accounting policies by critically reviewing the accounting standards and policies by reviewing academic and non-academic literature pertaining to its implications on the macro-environment. Critically debate the use/ misuse of financial data in the practice of management accounting and financial accounting. With respect to accounting standard, students are required to present arguments and evaluate the significant differences between financial accounting, management accounting, and thereby provide a meaningful explanation of Accounting Standards –[ IFRS & US – GAAP], and in particular discuss the impact of IFRS 9,15 &16 on your chosen company business, with special focus on Balance Sheet impact from a utility and misuse perspective. Plan and execute the management strategies of Cost Volume Profit, etc. for competitive financial management. Figures can be cited from annual reports chosen above. [25 marks].

Answer

Introduction
The concept of accounting explored in this financial accounting assignment is a process of collecting, recording, analysing, summarizing and reporting of transactions. The scope of accounting only pertains to recording and reporting of financial transactions to corporate entities only (Choubey and Mishra, 2016). The company chosen to prepare this financial accounting assignment is Havells where it’s relevant accounting standards, management policies and evaluation of the overall business and management performance has been conducted from its annual report 2018-2019.

Company Background
Havells India Limited is one of the largest FMCG companies that have made a remarkable mark through its strong global presence. The company selected in the context of financial accounting assignment is engaged in a large distribution of power and manufacturing equipment worldwide (Havells.com, 2018).

Vision
To become a globally recognised FMCG company in terms of excellence, consumer welfare, governance and extending fairness to all its stakeholders that include the environment and society in which the company operates.

Mission
To strongly achieve its vision with the help of following business ethics, reaching to customers globally, having expertise technology, building long-term relationships with all its business partners, customers, employees and associates.

Planning Strategies
The planning strategy for the company is to remain focussed on the theme of “Deeper into Homes” strategy. The corporate strategy of retaining value through efficient manufacturing is the reduction of material waste and increasing the proportion of recycling and alternative source of materials for raw materials in the production process for improving the material management for greater resource efficiency.

Financial and operational performance of the organisation
The financial performance of Havells considered in the financial accounting assignment shows net revenue of 24% growth. The revenue earned by the company for 2018 was ?8139 crores and for 2019 ?10058 crores. The EBITDA and EBITDA margin of growth is 14% with FY 2018 ?1049 crores or 12.9% and ?1192 crores or 11.9% for 2019. Over the five years, there has been a growth in EPS and DPS of 13% for the company with ?1121 dividend payment in FY 2018 and ?1266 of dividend payment in FY 2019. As per the analysis performed in the financial accounting assignment, the overall profitability of the company has grown by 11% within the last five years for the company.

The operational performance of the company has been consistent by delivering constant growth in its top line and bottom line in terms of its revenue. The company did not have any debt capital as on 21st March 2019 that reflected a strong operational efficiency on its part. The revenue and profits for FY 2012 were ?10,058 crores and ?792 crores respectively.

Competitor’s Analysis
One of the biggest competitors for Havells is V-Guard Industries Ltd. The company is engaged in the manufacturing of major electrical appliances with an annual turnover of ?23.21 billion for the FY 2017-18. The product line for V-Guard Industries includes manufacturing voltage stabilizers, electronic pumps, geysers, electric cables, electric motors and so on (Vguard.in, 2019).

Application of theory and Practice (LO1)
1.1 Evaluate the financial and operational performance of Havells
The financial performance of Havells has been identified in this financial accounting assignment through its integrated value creation. The company uses its financial capital as shareholders’ fund by way of equity and working capital. This financial capital is used to secure and grow other means of capital that would help the company to consistently deliver high returns to its stakeholders. In this financial accounting assignment, the financial performance of Havells has been estimated at the end of the fiscal year 31st march 2020 where the revenue of the company decreased by 65 to ?94.4 billion. Moreover, the net income from the extraordinary items has decreased by 6% to ?7.36 billion. The cause in the fall of the financial performance of the company was due to the fall in the demand for the products and services of Havells as a result of unfavourable market conditions. The basic EPS was ?12.57 and extraordinary items include ?11.76. 

The operational performance of the company for FY 2019 has signified with strong performance across all business segments for the company. The top highlights derived from the company’s annual report states that in the Q3 of financial accounting assignment, the performance of the company was strongly driven by its strong top line growth across all its business segments and product line. The operational profit of the company grew by 12% on the basis of the expected margin of year-to-year. There has been a strong demand for Havells product during the festive season that helped the business to make more consumer durable sales. The logistics and distribution lines of the network have been expanded by 10 to 15% in the current FY. The valuation of the firm increased by 45 times in the FY 2020 estimated earnings.

Comparing the balance sheet of Havells for FY 2018 and 2019, it can be seen in this financial accounting assignment that the total assets for 2018 were ?2908.68 crores in comparison to 2019 as ?3368.16. Similarly, the CA performance was improved from 2018 as ?3616.40 crores ?3793.04 crores in 2019. Due to an increase of both non-CA and CA of the company, the total assets position has increased from ?6541.41 crores to ?7179.08 crores. There has been an increase of total liabilities for the company as well from ?2802.26 crores to ?2936.55 crores from 2018 to 2019. The overall balance sheet performance can be said that it is fruitful for the company in 2019 than it was in 2018.

With an issue of equity shares considered in this financial accounting assignment there has been an increase of total equity of the company from ?3739.15 crores to ?4242.53 crores. Studying the profit and loss statement of the company, it can be said that the total income of the company has increased in manifolds from ?8377.26 crores to ?10185.17 crores respectively. It was due to increase in the sales and other sources of income. However, there has been an increase of total expenses of the business from 2018 to 2019 as ?7374.47 crores to ?9029.91 crores. Due to this calculation presented in the financial accounting assignment, the operating profit of the company has increased marginal. The company needs to control its cost structure effectively to reduce the shorting of earning profits. The company earned profits in both the earns as ?712.52 cores in 2018 and ?791.52 crores.

1.2 Review the influences of AS and accounting policies in the financial and macro-economic environment
The consolidated financial accounts of the company and its subsidiaries are prepared with strict compliance in accordance with Accounting Standards, the SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015. In accordance with Section 134(3)(c) of the Companies Act, 2013 depicted in the financial accounting assignment, the Director’s Responsibility Statement is prepared in accordance with the applicable standards for the purpose of proper explanation and materials disclosure about the affairs of the company. The accounting policies of the company are aligned with the financial statements and together presented to aim for true and fair values of the company’s affairs with full compliance with the existing accounting standards, applicable company and stock exchange laws and corporate regulations.

In pursuance of Indian Accounting Standards (IndAS), the management of the company has made an allocation of funds to its respective revenue streaming units. These allocations are made to be tested for the impairment of losses for the assets and to be used for discounted cash flow methods. The impairment model in regards to the scenario of financial accounting assignment has specifically been used for understanding the impact of the sales growth rate and its operating margin. According to Section 134(5) of the Company’s Board of Directors reviewed in this section of financial accounting assignment, they are responsible to prepare the standalone financial statements to depict a true and fair view of its financial health, financial performance including comprehensive income statement, cash flow statement and statement of changes inequity. The difference in IFRS and GAAP accounting techniques are reflected in the valuation of inventory, non-current assets, deferred taxes and depreciation. As both the companies follow GAAP, their accounting statements can be easily comparable to find and evaluate their performance easily.

The company uses principles in accordance with GAAP and IndAS under section 133 of the Companies (Indian Accounting Standards) Rules, 2015. As per the investigation carried on financial accounting assignment, transactions relating to third-party are compiled and recorded under section 177 and 188 of the Companies Act 2013. Applicable details about the disclosure in the notes to accounts about the financial statements are applied and used as per AS. Disclosures about the gratuity and other post-employment benefits plans for its employees are disclosed in the financial statements of the company in pursuance of IndAS 19 “Employee Benefits' '(notified under the section 133 of the Companies Act 2013”. 

1.3 What are the financial accounting and management accounting practices initiated by the company selected in this financial accounting assignment?
The financial accounting practices of Havells has been depicted through its financial statements of the company that has been prepared with accordance to IndAS under section 133 of the Companies Act 2013 and Companies (Indian Accounting Standards) Rule 2015 and Division II of Schedule II of the Companies Act 2013. The financial accounting practices include preparation of financial statements prepared on the basis of historical cost except for the following assets and liabilities such as typical financial assets and liabilities that are measured under the fair value system, assets held for sale that is measured at fair value deducted cost to selling, share-based payments and definite benefits plans for asset measurement at fair value. It is evident herein financial accounting assignment that the misuse or misrepresentation of financial data will lead the company into financial fraud that will not depict its financial statements in true and fair view. The company shall be following all the required norms to abide by all regulated accounting policies and procedures and standards in practicing financial and management accounting.

Management accounting practices followed by Havells is to improve the organizational performance and profitability of the company using the relevant financial accounting information. This information is used for planning, decision-making and controlling to adopt the management accounting systems for the company. In the present financial accounting assignment, these practices include inventory management, cost accounting system, price optimisation and job costing system. All these management accounting practices are followed by Havells to facilitate their smooth operations.

1.4 Discuss its plan and execution strategy to ensure competitive financial management
The competitive strategy of Havells is implemented by the company in two ways as mentioned in the financial accounting assignment - diversified product line and touchpoints in the market. Using the diversified product lines, the company uses each of its products through business verticals to pass through its electronic segment. It has helped the company in establishing itself strongly in the electric market of the country as well as assisted in the establishment and popularity within its industrial business segments. The touch points in the market have been implemented to ensure that the company can directly reach out to its targeted market segment. It has successfully created 414 Havells Galaxy, 27 Standard Gallery, 72 Havells Gallery stores.

These touchpoints have contributed to 225 of the total company’s revenue by reaching out to more than 280 districts around the country. It has made a strategic advantage to the business and the band in creating a greater experience for the customers and to establish itself as a high and powerful brand to recall. The investigation carried on this financial accounting assignment signifies that there are 17 business vertical segments of Havells from which it generates revenue every year. These 17 units have directly complemented the deeper SKUs of the business in bringing effectiveness to all its product lines. It has resulted in sought and trusted product offering to its customers.

The company follows a competitive strategy for expanding its business relationship with retailers and electricians through 360 degrees’ connection programs. It has allowed the company to expand its business by 3 to 4 times through its offering of instrumental and environmentally friendly products supporting the ecosystem. The subsidiary brands of the company are such as Crabtree, Lloyd, Standard and REO additionally facilitated to help the Havells brand to compete strongly and fiercely with the other existing reviewed brands in the market such as Crompton Greaves, V-Guard, Philips and many more.

The planning strategies of Havells discussed in the financial accounting assignment reflect the macro-economic business environment of the Country-India. India is one of the favourable countries to conduct business related to technology and innovation. Havells is dedicated towards investing in R&D to ease out the life of the users; therefore India is a favourable destination for the company. The macro-economic factors such as technology and economic situations favours that company in moving ahead with 360-degree connection program (De Castilho Lazaro, 2017).

Literature Review on Budgeting Practices (LO2)
2.1 Analyse the relevance of Traditional Budgets with New Age Budgetary types and techniques
Traditional Budgeting system is a methodology for preparing the budget of a company where the previous year budget is considered as the base. Within the scope of traditional budgeting, the items that are either over and above of the previous year’s budget only require justification and remaining line items are allocated required value (Lipsmeyer et al., 2017). The advantages of traditional budgeting systems outlined in this section of financial accounting assignment are- easy to implement, it brings in a sense of stability to the functional services of the company. Traditional budgetary practices help in the promotion of decentralisation for the business as well as provide an opportunity to cumulate the projects into one single larger unit. The methodology for preparing the traditional budget is much easier. On the contrary, the traditional budget has a few disadvantages as well in the form that it is rigid and fixed in nature. There is less scope of motivation as it is prepared by the top-management officials or bureaucrats (Locatelli  et al., 2016). A traditional budget gives excessive reliance on the previous year’s data and also makes a deliberate attempt in increasing the budgetary costs. Such types of budgets do not give any kind of priority to the location of resources.

In this financial accounting assignment, there are five types of budgeting that include Incremental Budgeting, Base Budgeting (BB), Activity-Based Budgeting (ABB), Kaizen Budgeting, Zero-Based Budgeting (ZBB). There are two approaches to budgeting which are top-down approach and bottom-up approach. Within the top-down approach, it involves the top management deciding for the company about how much it should spend and how much it should save (Moiseev et al., 2016). On the contrary, the bottom-up approach talks about each division in the organization to supply financial data and resources information to be passed to the upper management for approval. Both the companies that are Havells and V-Guard used in this study of financial accounting assignment use rolling budgeting technique under alternative budgetary procedure as its preferred budgetary function. The management of the companies determine the budget for the next year from the gross margin based on the previous year performance and its expectations in the current year with market deviation. The weighted average growth of market rates is effectively used in making a consistent forecast about the industrial reports.

The budgetary process is a long circular chain that involves determining the timeline-> agreeing to organisational goals -> understanding the present financial status of the company in terms of available resources -> agree on the chosen budgetary approach -> development of draft expense budget -> developing the draft income budget-> reviewing of the draft budget by the top management -> approving of budget-> documentation of budget decisions -> implementation of budgets and again -> determining timeline.

The traditional budgeting model involves visions, strategy, annual budget, keeping the income and expenses on track, control of cost and incentives to be provided to departments for the positive variance. As mentioned by Alkaraan (2017) in the context of financial accounting assignment, the disadvantages of the top-down approach are inflexibility, bureaucracy, overall control of the organisation, imposed processes and no moral support to the business managers and employees who feel that a top-down approach is not suitable for the company. The bottom-up approach has several advantages such as flexibility, agility, collaboration, team-driven process and higher motivation to team members for better contribution to develop and make the business objects and aims successfully complete. 

2.2 Define the budgeting approaches that will be linked for performance management for improving operational planning and management strategies
There are four kinds of budgetary approaches discussed in this financial accounting assignment used by different organisations that have symmetrical approaches towards performance management to improve the operational planning and management strategies. These approaches are ZBB, Traditional Budgeting, Incremental Budgeting and Activity Based Budgeting (Warren and Seal, 2018). ZBB measures and prepares the present years from every scratch that ignores consideration of the previous year’s figures. Traditional budgeting rightfully considered the last year budgetary figures. It only makes minimal changes in terms of inflation rate, consumer demand and market adverse or favourable situation. The incremental budgeting approach is prepared through modification in the past year’s budgeted figure after consideration of the inflation rate.

It is one of the quickest and simplest methods of budgetary practice. ABB is a budgetary method where the budgets are assessed and appeared with respect to the cost drivers. As opined by Li and Trutnevyte (2017), it is noted herein financial accounting assignment that ABB makes a deeper analysis of each of the activities incurred by the business. The operational planning defined under budgetary approach states that it must undergo a series of steps that would embed together within the budgetary process and shall continue for the entire accounting period. As provided in the financial accounting assignment, the steps include forecasting of revenue and expenditures -> review conducted by the City Council about the strategic plan and establishment of budgetary priorities -> establishment of base budget guidelines ->

Preparation of departmental operational plan -> submission of department-based budget and request for funding -> review conducted by the departmental manager in accordance with the performance plans -> review conducted by the City Council Department to identify any significant issues -> submission of budgetary plans to City Council, -> establishment of the tentative budget -> seeking of public input to City Council -> adoption of a final budget by the City Council and -> departmental review progress to measure achieving]men towards the planning of desired outcomes. Using the value-driven budgeting system, it helps each of the budgetary approaches to adopt a cost cutting technique (Adi et al., 2019).

The value-driven budgeting practices involve four categories such as value generating activities, supporting activities, non-value generating activities and waste. Examples for each of the categories are assembly lines and field sales force for value generating activities that help in improving the operational performance and organizational strategies. The present report on financial accounting assignment is developed with the help of credible sources. The maintenance function and use of marketing intelligence are included within the scope of supporting activities. Waste is generated through excessive reporting and excess use of capacity. The non-value generating units are regulatory reporting practices and wasted machine setup systems. The bottom-up approach has numerous advantages as it helps in increasing the level of motivation in terms of ownership of the budgets (Lindvall and Larsson, 2017).

Budgets within the bottom-up approach must carry a better source of information as its employees are mostly familiar with the departmental or divisional heads. There is an increased level of commitment and understanding on the part of the managers. The communication between departments is far better in a bottom-up approach than other forms of budgetary practices (Doorley et al., 2018). The senior management is only entrusted to ponder upon strategy formulation and implementation. However, the disadvantages of a bottom-up approach mentioned in the financial accounting assignment are that the senior management team of a company loses all control and managerial facilities. There is a larger possibility of dysfunctional behaviour in the preparation of budgets.

It may so happen that the corporate objectives may not align with the budgetary objectives as there is a sense of strategic perspectives on the part of the managers and their focus is shifted towards divisions concerns. The research on financial accounting assignment illustrates that the bottom-up approach of budgeting is susceptible to bad decisions due to inexperienced managers (Otekunrin et al., 2018). The procedure for budget preparation is slow and thus there is a chance of disputes. It occurs in repeated budgetary slacks where the managers set up feasible and easy targets that can be achieved easily by the business managers. The planning cycle for budgetary approach involves budgeting, capital and financial planning, forecasting, operational planning, strategic planning and tactical planning. It is known as the Golden Circle that infers upon what, how and why an organisation chooses budgetary approach in the preparation of budgets.

2.3 Apply Smart technologies to investigate the performance and management issues
The application of smart technology such as AI holds a greater emphasis in the area of financial planning and analysis. However, before adopting smart technologies in budgeting, forecasting and management processes, the business managers must overcome the three barriers of adopting technology to budgeting (Schabus  et al., 2018). These include improving data quality, removing human biases from algorithms and re-assuring the employees that AI technology is a blessing and not a reason for unemployment. In the present scenario of financial accounting assignment, the adoption of smart budgeting is a technology that will help in increasing the accuracy and productivity of the business, better budgetary practices and forecast and greater collaboration with business partners. The application of Smart technologies in the budgetary process is specific to three areas as planning, budgeting and forecasting. The technologies that can be used in budgetary practices can be automation for helping the business in budgetary and forecasting process. These techniques will automatically sync the previous year’s figures and provide an expected outcome for the future years to come.

The readings utilized in the financial accounting assignment depicts that planning involves top to down development for a company made for a period of 3 to 5 years to ensure delivery of long-term value creation for the business. Planning considers a balanced growth of financial and non-financial measurement of financial resources for the company. It provides the basis of targets to be met to the business units and operational units for the company. As said by Raki?evi? et al. (2016), planning using AI technology shall enable modelling of advanced technology for evaluation of the consolidated business in the situation of usual terms as well as specific to project scenarios.

Budgeting involves the preparation of annual budgets for the business for representing financial data and financial performance of the company. As opined by Savage and Verdun (2016) within this financial accounting assignment, budgetary practice depends upon the activities taken up by the company on the basis of business and project plans that are expressed in terms of profits or losses reached by the company in the income statements, balance sheet depicting the total assets, liabilities and shareholders’ funds and cash flow statements indicating the total cash inflow and cash outflows. 

The concept of forecasting explored in the financial accounting assignment is the process that focuses on business actions to bridge the performance gaps. The Actions of forecasting largely depended upon the company’s drive towards the word of mouth strategy for the management reporting process (Kroos et al., 2018). Forecasting involves encompassing new and advanced management accounting practices with respect to the external business environment and additional factors that result in a positive impact of the performance.

Information Technology can be used within the budgetary process by conducting sensitivity analysis. It is the technology which is cost-effective and helps in performing a comprehensive framework of sensitivity transactional analysis (Kim and Im, 2017). The sensitivity analysis used in this financial accounting assignment helps in providing a better sense of understanding of how a change in the revenue and cost structure will likely to affect the company’s profits. Companies that are using budgetary and management software can combine adequately the budgetary data from the multiple revenue segments of the company extracted from the financial statements. As opined by De Simone (2016), a well-designed IT system helps the budgetary process to become less cumbersome by the local government and to run more efficiently in the allocation and absorption of finance. An effective It budgetary system helps in the promotion of accountability and establishing guidelines in maintaining parity between cost and resources.

Ratio Analysis and Financial Interpretations (LO3)
3.1 Application of ratio analysis to interpret the business performance of both the companies
It is evident herein financial accounting assignment that the main competitor of Havells India is V-Guard Industries Ltd. Both companies develop unique strategies to attract customers within the same industry. The business performance for both the companies can be rightly understood through the computation of ratio for the FY 2018 and 2019 and hereby analysing its financial status. There are four broad types of accounting ratio- profitability, liquidity, and solvency and investor ratios.

A profitability ratio defined herein financial accounting assignment is financial metrics that a financial manager, analyst and investors used to measure and evaluate the ability of the company in generating profits against the revenue earned, assets, operating cost and the shareholder’s equity for an accounting year (Ittner and Michels, 2017). Few common profitability ratios are operating profit margin, gross profit margin, net profit margin, PBIT margin and many more. For FY 2019, the profitability ratio computed for Havells is 10.89% as operating profit margin, 8.48% as PBIT margin, 8.58% as gross profit margin and 7.77% as net profit margin.

On the contrary, for 2018, the profitability ratios were 11.85% as operating profit margin, 10.24% as PBIT margin, 10.37% as GP margin and 7.86% as NP margin. On the basis of comparison in regards to the case scenario of financial accounting assignment, similar types of profitability ratio have been computed for V-Guard for FY 2019 and 2018. The PBIT margin for V-Guard for 2019 and 2018 was 9.23% and 8.55% respectively; net profit margin results were 3.88% and 3.13% for 2019 and 2018. It can be observed that the profitability position of Havells is much stronger and ahead of V-Guard.

From the analysis done in this financial accounting assignment, the net profit margin of Havells is much larger than V-Guard due to the former's higher amount of net profit, net sales and optimal balance of operating income for both the years. On the contrary, for V-Guard, the company had earned an operating profit, however, its net revenue is lower than its competitor- Havells India. It can be observed that Havells India Ltd. has a higher value of PBIT margin as 8.48% as against 8.38% in 2019 and 10.24% as compared to 7.72% in 2018. It depicts the true value of the business costs for the company as non-operating items such as depreciation; taxes and interest are excluded from its computation. Thus, the true business value for Havells is more than that of V-Guard.

The liquidity ratio of business evaluated herein financial accounting assignment estimates the short-term solvency position of the company in terms of paying off its short-term obligation by using the CA available with the company (Florou et al., 2017). The liquidity ratio determines the potential of the company is paying off the current debt obligations within its internal capital funds. The two most common liquidity ratios are current ratios and quick assets ratio. Both the ratios are used to decipher the relationship between CA with CL and quick assets with CL respectively. The industrial benchmark for current ratio is 2:1 and for the quick ratio is 1:1.

Havells current ratios for 2019 and 2018 identified in this financial accounting assignment were 1.32: 1 and 1.38:1. On the other hand, quick ratio values for the same period were 0.63:1 and 0.71:1. The values of current ratios for V-Guard for 2019 and 2018 were 2.44:1 and 2.34:1 respectively and quick ratio values were 1.61:1 and 1.54:1 respectively for comparing the liquidity position of both the companies for the same period of time. It can be directly observed that the liquidity position of V-Guard is far better than Havells India Ltd. In both the cases of financial accounting assignment for both the years, V-Guard has successfully crossed the benchmark indicating a favourable position for itself. The short-term resources of V-Guard are most favourable and optimal with more than 50% worth of absolute liquidity to meet the required short-term debt obligation which is absent for Havells.

Solvency ratio or debt coverage ratio is an accounting ratio that is computed to compare the debt’s obligations and debt capacity of the company with respect to a different financial index such as interest, assets, equity and revenue. The two solvency ratios as noted in this financial accounting assignment commonly used by retail businesses are the interest times cover ratio and total debt to equity ratio (Ashrafi et al., 2016). The interest cover ratio estimates the total interest payable by the company from its EBIT. The values of this ratio for Havells Ltd for 2019 and 2018 are 46.73 times and 73.61 times. On the contrary, the interest cover ratio for V-Guard is 170.06 times and 107.75 times.

In both cases, it can be seen in this financial accounting assignment that values are much higher thereby indicating a higher proportion of financial leverage risking the investment for investors and creditors. However, to draw a comparison between the two companies it is opined that the financial leverage is lower for Havells in comparison to V-Guard. The interest liability of both companies is higher with V-Guard causing greater risky proposals for the business to meet up with its debt obligations. The D/E ratio measures the proportion of debt and equity funds invested in the business to continue its operational activities (Randall and Rueben, 2017). Havells Ltd. has secured a D/E ratio as 0 and 0.01 for 2019 and 2018. On the contrary, V-Guard has a D/E ratio of 0.01 and 0 for 2019 and 2018. These values indicate that both the companies have sufficient amounts of internal sources of capital to finance for their operations. The long-term solvency position for both heels and V-Guard is exceptionally good indicating better and brighter prospects for long-term sustenance in the market.

The investor valuation ratios of the company are estimated correctly using the book value and earnings per share. This ratio outlined in the financial accounting assignment helps especially the prospective investors to invest in the company’s stock as well as for the existing investors to continue their investment through more investment (Randall and Rueben, 2017). The investor ratios predict the market valuation of the company through the exchange and transactions of shares and stocks in the stock exchange. The DPS of the Havells for 2019 and 2018 were ?4 and ?4.50. The EPS of the company for the same period are ?12.65 and ?11.21. The DPS ratio indicates the amount of dividend paid by the company to its shareholder against their investment made into the company through equity shares. On the other hand, EPS means earnings made by the company against each share.

It is seen in this financial accounting assignment that from earnings, the DPS of the company is paid, it can be seen that there has been a slight fall of DPS by ?0.50 from 2018 to 2019 whereas there has been an increase of EPS for the same time. It signifies that the company wishes to retain more profits by reducing the DPS even after earning a greater EPS in 2019. The EPS of V-Guard for 2019 and 2018 were ?3.13 and ?3.88 and DPS of the company were 0.80 and 0.70 for the same FYs. The market performance of V-Guard is very poor in comparison to Havells through the estimates of low EPS and DPS. The company trades its shares at a lower rate and therefore has received lesser income against its shares and therefore pays lower dividends to its shareholders [Refer to Appendix 1 of financial accounting assignment].
Overall, it can be said in the financial accounting assignment as the financial performance of Havells India Limited is far better than its competitors V-Guard except in the area of liquidity position for the company, Havells needs to strategies measures to improve its liquidity position by increasing the amount of CA or decreasing CL or both.

3.2 Discuss the development or disruptions of the external operating environment
The external operating environment can be understood from the PESTLE analysis of the country in which Havells operates predominantly- India. 

Political environment - India is the largest democratic country in the world and is considered one of the powerful nations. India is surrounded by all three types of economies- developed nations such as China, developing nations as Sri Lanka and undeveloped nations as Nepal, Bhutan, Bangladesh and Pakistan. The country has a stable political environment. However, it has a long history of political dispute with Kashmir or Kashmir and there lies a heavy political uncertainty ((Randall and Rueben, 2017). The Citizenship Amendment Act 2019 created mass protests and violence in many states of the country. India is concerned with the issue of corruption that affects the business and political environment of the country. The readings used to prepare this financial accounting assignment also depicts that the political environment of the country is somewhat favourable in helping companies like Havells and V-Guard to continue their business in the country for a long-term and all required support will be provided form the end of the government. The revenue earned by these companies are contributed to a part as CSR activities under the political regulation of India.

Economic environment - India is the second largest economy of the world with respect to nominal GDP rate. The GDP for the country in 2018 was $2.72 trillion; there has not been any kind of improvement in the consumer demand pattern due to high income disparity among all the sections of the economy. Recently, the economy is at a slow pace making people more concerned about the demand and supply pattern in the economy. It is shown herein financial accounting assignment that India has the lowest corporate tax rate system that was reduced from 30% to 22% in September 2019. For manufacturing companies like Havells and V-Guard it has been a massive help to keep their profitability high as much as possible for financing its own operations instead of borrowing short-term and long-term loans. The economic situation for the country has favoured in continuation of operations in larger scale for Havells and V-Guard to enjoy the benefits from economies of scale. The tax rates were decreased from 25% to 15% to promote more manufacturing activities. There have been frequent changes in the tax rate within the country as illustrated in this financial accounting assignment (Pineda et al., 2018) 

Social environment - India has one of the largest consumer markets in the world having wide demand for goods and services. The total population of the country is 1.25 billion and therefore, there is a large scope for MNC to start-up business in India. India supplies cheap sources of labour and labour force to other countries and it is expected to reach more than 170 million by the end of the current year. The labour force of the country is easily accessible and affordable prices business operations to India at a cheaper rate. Therefore, the MNCs are greatly encouraged to outsource their work. Both Havells and V-Guard considered in the segments of financial accounting assignment will be initiated to make their mark in international countries through the strategic alliances of joint ventures or franchises having such positive social environment within the country. Both the companies generate cheap sources of labour within the country due to high population and skilled employees.

Technological Environment- India is supported by technological advanced strategies in the country. Reports suggested that India is the 3rd largest country that is most technologically advanced in the world. Due to the government’s “Make in India”, big tech giants such as Facebook, Microsoft and Apple have started their production unit in the country and began to invest. India is the key source of destination for outsourcing of jobs by the developed nation. The people of the country have high and advanced knowledge in IT programming language and IT infrastructure with higher skills of IT workforce available in the country. Thus, it is specified herein financial accounting assignment that India has provided great employment opportunities in the tertiary sector of the country through the means of software development, e-commerce, mobile apps, business valuation, up-gradation and many more. With this IT knowledge, Havells and V-Guard can make use of machine learning, AI technology and other tools in curating equipment to make the lives of the people easier. The IT workforce can collaborate with the company to manufacture least manual controlled equipment’s for the company as a means of competitive advantage.

Environmental- There has been too much development in the environmental sector of the country. The country has already faced tremendous environmental challenges in terms of air pollution, water pollution, and soil pollution, natural disasters like floods, resource depletion and conservation of water and forest reservation. There has been a loss of diversity and too much of consumer waste being dumped into the rivers. Researchers in regards to the scenario of financial accounting assignment suggest that it is difficult for the country to rid away from the environmental challenges however; measures have been taken to reduce such concerns. Havells and V-guard contributes 2% of their net profit every year as a means of CSR activities to improve the quality of environment. Both the companies examined in the financial accounting assignment are engaged in successful social and welfare oriented program helping the environment around it to prosper and nourish in the smallest possible way.

3.3 Evaluation of future strategies for financial changes to improve organisational sustainability
The future strategies to be adopted by Havells to increase its future strategic compliances and changes in the financial structure involve creation of greater value for the company. Value creation for the firm can be increased by increasing the value proposition for the stakeholder’s value or output deliverables. Havells needs to identify its core activities and therefore requires enabling a strategic implementation of elements for value drivers. The core activities of Havells include its human resources, physical resources such as technology, financial resources which are its sources of funding, supplier’s relationship and structural resources involving information and data system. The future strategy of V-Guard presented in the financial accounting assignment is to growth itself in the most significant manner by developing a strong brand name of itself in the country. The company plans to diversify its portfolio and need to look beyond its target market that is segmented in the south of the country. V-Guard wants to compete with the leading national brands of the country in all product portfolio categories. The company has planned to expand its channels of distribution and network through aggregative sales team restructuring. The company selected in this context of financial accounting assignment has planned to open new branches in other parts of the country having investment talent and providing outstanding customer care services.

Strategic growth and optimal finance for sustainable future growth for Havells can be achieved by crafting a unique investments allergy including six components such as context, visions and mission, investment principles, strategic formulation and selection, implementation and communication. Under context of financial accounting assignment, Havells needs to gather facts and data about the external environmental business trends such as political, social, environmental, technological, economical and legal. The managers of Havells need to identify the competitive advantage and capabilities of the strategies as well as its current market position. Havells needs to understand its scope for business investments as a key player in the organisation. Within the strategic future planning outlined in this financial accounting assignment, V-Guard wants to strategies its market in the western part of the country by increasing its market capitalisation for expanding its product portfolio. The new sales structure will lead the company to explore the Northern and Eastern markets of the country having a good percentage of revenues to be earned in the coming years. The company wants to fragment its competitive advantage through fragmenting its markets in smaller parts. No band can increasingly become a ruling company until its business is fragmented.

Investment Appraisal Techniques (LO4)
4.1 What is the importance of investment appraisal techniques discussed in the context of financial accounting assignment?
Investment appraisal is a scientific technique that is used in financial management for the purpose of decision-making tools to conduct the analysis of whether the future investment technique should be carried out by the company or not. This technique depicted in the financial accounting assignment shows the business whether the investment project has long-term potential or not and what is the degree of profitability for future projects to the company (Kumar and Samanta, 2017). The capital investment techniques are important to businesses as it is a large source of company resources, Investment projects carry a large number of corporate resources and hard work of the managerial personnel that are important for critical evaluation of a final decision. The investment appraisal techniques help in maximising the shareholder’s wealth. The investment decision for a business is linked with the strategic and tactical business decisions and thus it requires accomplishing the desired level of long-term objectives. As stated in the financial accounting assignment, the most common objective of investment appraisal is the maximisation of shareholder’s wealth. 

4.2 Conduct discounted and non-discounted flow analysis
One of the most popular discounted flow analytical methods defined in the financial accounting assignment is Net Present Value or (NPV) (Bendickson and Chandler, 2109). It is a sophisticated technique where all the future values of the cash flow irrespective of negative or positive are calculated all together and then added up. A positive NPV is always expected or higher.

The argument between discounted flow and non-discounted flow analysis can be explained within this financial accounting assignment using the time value of money. This concept is important as it allows the investors to value the worth of money at the present time as well as value of the same amount of money at the end of the investable period. It thus helps the investors to be informed about the decision about what to do with the money left in his hand. The application of TVM allows the investor to have an understanding about the best possible option available for investment based on the inflation, interest, risk and return.

In addition to this fact presented in the financial accounting assignment, the concept of DCP is more favourable than non-DCP as the former is completely based on the cost of equity, weighted average cost of capital, growth rate and rate of re-investment. With all these figures, it is easy for an investor to compute the intrinsic value of the assets. On the contrary, the non-discounted cash flow methods have failed in presenting the net income to be generated from the investment to the investors. The method is a complete failure of assessing the liquidity and solvency position of the investment as well as the company (Jaggi et al., 2016).

For instance, Havells Ltd wants to invest in any of the two projects such as Project A or Project B for ?100 crores. The discounting factor obtained in this financial accounting assignment is 10% with uneven cash flow for Project A and an even cash flow for Project B. The computational results of NPV for Project A is ?4.8 crores as against ?-43.15 crores for Project B. Therefore, Project A must be selected having a positive and higher NPV.

The concept of NPV outlined in the financial accounting assignment is fairly important as capital budgeting technique as it helps in determining the value of $1 of the project added to the company by taking into account of the money that has been invested to realise the project (Hopkinson, 2017). It is also known as the initial investment that the investor has undertaken to invest on the project to earn a hefty return. For the same case scenario of financial accounting assignment, the payback period for Project A and Project B is calculated for Havells India Ltd. A payback period having the shorter value must be selected indicating that within a very short period of time, the company can bring back its inevitable amount.

The payback period for Project A is 4 years and for Project, B is 0.75 years. It can be said in this financial accounting assignment that project B has a lower payback period and therefore, it must be selected by Havells Limited as a preferable choice of investible project in accordance with the payback period. The payback period is important is assessing the investment risk. A project having shortest payback period has lower risk of price fluctuation than projects having longer payback period. The financial accounting assignment utilized the readings of Zis et al. (2016), that the application of payback period is used to determining the liquidity position of the investment as an important consideration for determining the feasibility and viability of the project.

4.3 Evaluate two investment appraisal techniques and apply to the organisation
The two common investment appraisal techniques are Internal Rate of Return (IRR) and Profitability Index (PI). Both the techniques mentioned in the financial accounting assignment can be applied to Havells India Ltd. under fictitious investment proposals. The IRR technique is used as a means of evaluation for big projects and investment proposals for large companies (Laux and Stocken, 2018). The decision-making time for IRR is quite less and simple. The decision criteria for IRR states that a project having a negative percentage as IRR cannot be selected. The advantages of IRR are that it can simply predict to the businesses what shall be the expected return in the form of % to the business against the investment made (Govindarajan and Poominathan, 2017). The allowance of deciding over the hurdle rate is missing. The disadvantage of IRR is that it ignores the present value of ?.

In the given case for Havells explored in the sections of financial accounting assignment, for instance, there are two projects where the company wishes to invest for an amount of ?100 crores. Project A has uneven cash flow whereas Project B has an even cash flow of ?15 crores each for 5 years. For Project A, the cash flows for each of the years are ?15 crores, ?20 crores, ?35 crores, ?30 crores and ?45 crores. The IRR for Project A is 12% and for Project, B is -9%. From the above decision-criteria, it is clear that Havells India Limited must invest funds of ?100 crores into Project A at a 10% discounting rate having a positive IRR than in Project B.

The profitability index is an investment measurement that computes the number of ?returns for every dollar invested by a company into an investment proposal. The formula used for computing PI is PV of Future Cash Flows/ Initial Investments. The PI describes a financial index to bring forth the relationship between cost and its benefits to be derived from the project. As said by Rana and Goel (2018) within this financial accounting assignment, this method is useful for an investor is quantifying the total value expected to be created by the investment against each investable unit. PI value of 1 is considered to be the lowest acceptable range as any value lower than 1 shall indicate that the present value of the project is lower than its initial cost of investment which is not suitable for investors.

The PI has been computed for two projects in which Havells India wishes to invest as Project A and Project B. The PV of the net cash inflows for Project A is ?145 crores and for Project B is ?75 crores. The initial investment for both the projects discussed in the financial accounting assignment is ?100 crores. The NPV for Project A is ?45 crores and for Project, B is ?-25 crores. Thus, the PI for both the reports has been estimated to be 1.45 and 0.75. It is clear from the observation that project A must be selected by Havells India due to higher PI ratio.

Conclusion
It can be concluded from the overall analysis on financial accounting assignment that financial accounting has the primary work of recording transactions in the books of accounts. This is known as bookkeeping. The usefulness of financial accounting to Havells India Limited is immense that allowed the business to foster its own financial health and compare the same with its next best competitor V-Guard.

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Appendix
Appendix 1: Financial Ratios