Financial Analysis of Lego Plc Public Limited

Literature review

Accounting methods and techniques assist managers to frame the cost structure of organisation and making effective decision making. There is an analysis of break even and budgets by applying budgetary control and break even analysis technique.

According to Almarri, and Blackwell, (2014) Break even analysis indicates towards defining the point which indicates towards the point at which cost and revenues of organisation become equal. Break-even analysis mainly assist the decision making process in term of determining the minimum level of sales to operate the manufacturing and production process. Owners of organisation wants to achieve high productivity and sales units in terms of enhance the profitability and sales graph of organisation. It defines the relationship between the cost and revenues generated by business.

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As per Penning-Rowsell and et. al., (2014), Budget is considered as a cost controlling tool which is used by association to analyse the cost incurred in manufacturing and production process. It provides a forecasted information and data associated with sales and revenues for upcoming years and durations. This also impact the process of making financial plans strategic planning. Budgets are prepared on the basis of certain assumptions and theories which mainly associated with long terms formation of business process. Budgets helps to analyse projected outcomes for future and also helps to identify the idle areas and extra cost centres.

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Source of funding

Funds and capital are the primary requirement of business subject to expand the scope of business further (Li and Trutnevyte, 2017). This mainly centralised around making the business establishing plan. Vast amount of funding is required to expand the business structure at large scale. As per case study of LEGO limited is one of the public sector organisation. Which is seeking for the investment of new software investment plan to enhance the quality of products and services of organisation. There are three major issues found in front of organisation as proposed investment in a new software, implementation of appropriate accounting techniques to analyse the sustainability of investment and expansion plan of acquiring the organisation in Europe. There are two main sources of funding exist for organisations as;

Internal source

These are the sources found internally in business under which funds are generated by organisation itself. There is no any extra cost faced by organisation in exchange of utilising the source. Major internal sources of funding are defined as follows:

Retain earnings: This is one of the internal source of funding which is build up by organisations by saving the money in the form of reserves and surplus. Shareholders equity, reserves, capital reserves, profits, redemption reserves are the forms in which organisation retains the funds (Griffith, Stephenson, and Watson, 2014).

• Advantages: It reduces the extra cost which is paid in the form of interest. Overall control remains in the hand of organisation subject and managers can utilise these funds in required areas.
• Disadvantage: Excess use of retain earnings decrease the profitability, reserves and surplus which impact the credit limit of organisation. Form investors and shareholder's perspective it is required for organisation to retain an optimum amount of reserves and surplus to maintain a favourable credit score.

Owner's capital: This is also one of the common internal sources of funding. Business owners, directors put capital and funds by their personal strength. This sources of fund mainly centralised around contributing the amount to creating more capital. Building strong capital base is the main objective of this source of funding.

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