UNIT 04: FINANCIAL DECISION MAKING - 1.1 Analyse the factors that guide and drive decision making in business

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Unit Reference Number


Unit Title

Unit 04: Financial Decision Making

Unit Level


Total Qualification Time (TQT)

200 Hours

Guided Learning Hours (GLH)

80 Hours

Number of Credits


Mandatory / Optional


Unit Grading Structure

Pass / Fail

Unit Aims

The aim of this unit is to demonstrate the links between business decision making, risk assessment and financial information. Learners will understand how businesses are financed through their fixed and working capital requirements and how the financial management of each organisation is influenced by its governance and ownership structure.

Learning Outcomes and Assessment Criteria: Unit 04: Financial Decision Making


Learning Outcome – The learner will:

Assessment Criterion – The learner can:


Understand the role of financial information and financial analysis in business risk assessment and decision- making.


Analyse the factors that guide and drive decision making in business.


Assess the significance of financial factors in business decision making.


Evaluate the characteristics of business risk that impact on financial and business decisions.


Understand how financial statements and their structure aid business decision making.


Compare the accrual and cash flow approaches to accounting and financial reporting and the implications of each for business decision making.


Evaluate the structure and content of final accounts and their uses for business decision making.


Interpret financial information in balance sheets, income statements as well as sources and applications of funds statements.


Differentiate between financial decisions relating to capital expenditure and those relating to revenue expenditure.


Be able to perform effective capital expenditure appraisal using range of techniques.


Appraise various sources of short-term and long- term financing for businesses.


Critically examine key factors affecting the choice of source of financing.






Evaluate various techniques used for appraising and making decisions regarding capital expenditure.


Explain the possible benefits and drawbacks of off-balance sheet financing.


Be able to evaluate how


Critically analyse the corporate governance, legal


different ownership structures


and regulatory environments of different business


impact on financial


ownership structures.






Compare and contrast stakeholder interests of




owners and managers in decision making.




Evaluate the significance of Return on capital




Employed (ROCE), Earnings Per Share (EPS)




and other overall performance measures for the




long-term sustainability of businesses.




Differentiate between business ethics,




governance and accounting ethics as controls on




business accountability.

 Indicative contents



Course Coverage

Learning Outcome 1

Ownership structures, financial statements

·         Sole traders, partnerships, limited companies, public limited companies, public sector organisations, cooperatives, international business structures, implications for finance

·         Structure of statements for each type of organisation, differences between organisations, reporting requirements (UK and/or international law and standards)

Learning Outcomes 2 and 3

Structure, format and requirements of published accounts

·         Role of auditors, published vs internal financial information, main published financial statements: statement of financial position, statement of financial performance, statement of cash flows

·         Different ratios: profitability, liquidity, efficiency, capital, investor, using ratios: calculation and interpretation, industry benchmarking, limitations of ratio analysis

Learning Outcomes 1 and 3

Business finance needs and sources of finance

·         Long term – non-current assets; Short-term – working capital; importance of working capital for business continuity

·         Costs of finance, effect on financial statements, range of sources, external and internal sources, long-term and short-term role of stock markets and advantages, disadvantages of each source

·         Matching source of finance to project (long or short term, external or internal, asset backed finance etc.

Learning Outcomes 3 and 4

·         Cash flow forecasts, budgetary control systems and


Budgets, cash flow and investment appraisal

budget formation and managing cash flow

·         Net present value, discounted cash flows, internal rate of return, payback, accounting rate of return

·         Analysing results, non-financial considerations, decision making, supporting recommendations



To achieve a ‘pass’ for this unit, learners must provide evidence to demonstrate that they have fulfilled all the learning outcomes and meet the standards specified by all assessment criteria.

Learning Outcomes to be met

Assessment criteria covered

Assessment type

Word count

(approx. length)

All 1 to 4

All ACs under LO 1 to 4

Coursework– based on application of relevant theories and concepts to a defined context

3500 words

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