Applied Business Finance

This article discusses financial management, including planning, organizing, directing, and controlling financial resources to make profits. It covers the importance of financial management, financial statements, and ratios used to measure financial health. The article also provides techniques to improve a business's financial position, such as lowering costs, recovering outstanding revenues, selling unused assets, and improving marketing tactics.

Applied Business finance

Contents
Introduction......................................................................................................................................4
Section 1...........................................................................................................................................4
Concept of financial management :........................................................................................4
Importance of financial management :...................................................................................4
Section 2...........................................................................................................................................5
In this describing the financial statements and use of ratios in financial management..........5
Use of ratios in financial management : ................................................................................6
Section – 3 .......................................................................................................................................6
Business Review :...................................................................................................................6
Section 4.........................................................................................................................................11
Conclusion.....................................................................................................................................12
References......................................................................................................................................13

Introduction
Financial Management means planning, organizing, directing and controlling the
financial resources of the business in order to make profits. It is concerned with procuring,
allocation of funds, investing in the projects of the concern. Companies uses the financial
management tools to ensure there is enough capital to smoothly run the business. In addition,
funds are properly invested to have adequate returns to the shareholders which is entirely depend
upon the earning capacity of the firm, market price of the share and various other factors. In this
financial decisions are taken such as investing decision, financial decisions, and dividend
decisions in order to make profits to the concern. In organisations financial planning is done to
achieve organisational goals and enhance the performance of the business.
Section 1
Concept of financial management :
Finances are the lifeline of businesses. It is important for the business to manage its funds
properly in order to boost up its profits. Financial management is all about making financial
decisions and planning the future corporate strategy. It is important for the company to raise the
funds from the sources which will generate higher returns at lower costs. Various activities are
taken into consideration in financial management to reduce the cost of business and invest in
profitable projects.
Importance of financial management :
Finance is the lifeblood of any business it meet the requirements of the organisation. It is
important to maintain enough capital for the smooth running of the concern. Financial
management is done to achieve the goals of the organisation.(Baker, Filbeck and Ricciardi,
2017)
Financial planning : financial planning is the part of financial management. It becomes
necessary to acquire the funds from cheaper sources after doing the analysis of various sources.
Proper use and allocation of funds will improve the operational efficiency and will help to
achieve organisational goals.

Financial decisions : It helps the business to take sound decision making. This decision
making regarding, from which source to raise funds, in which project to invest will help to make
more profitable business.
Increases the wealth of investors : Every company do financial management with the
purpose of increasing the wealth of investors. It will enhance the performance of the concern and
would be able to make more profits.
It is helpful in formation of capital structure : It is the combination of debt and equity used
by the company to finance its overall operations. Equity capital is owners capital and debt is
borrowed funds. In this company plans the capital structure in order to make higher profits at
lower costs.
Section 2
In this describing the financial statements and use of ratios in financial management.
Financial statements is the collection of financial information. It is helpful to understand the
financial health of the business. There are three main financial statements prepared to know the
profits or losses of the concern such as income statement, balance sheet and cash flow statement.
(Budzinski, 2018)
Income statement : it is a profit and loss statement which showcases all the expenses and
revenues of the concern during the period. It can be prepared for monthly, quarterly or annual
basis. It shows how well the organisation is performing and helps to measure the profits of the
concern on timely basis. It reflects the net profit or net loss of the business, this helps in tracking
the performance of the concern and make changes accordingly. It includes cost of good sold,
revenue, gross profit, operating expenses so on.
Balance sheet : it shows the financial position of the business on a specific date. It shows
what are the company's assets and liabilities. This helps the managers to know current and future
opportunities to expand their business and figuring out the ways to improve the performance.
This includes assets (fixed assets, current assets) and liabilities (fixed and current liabilities)
equity . It is helpful to make decisions regarding the spending and managing financial resources
by looking at balance sheet. It gives business and idea of how quickly the assets can be converted
into cash, which shows the stability and liquidity of the business concern.

Cash flow statement : it shows the cash inflows and outflows of money in the concern. It
helpful to keep a check on cash inflows and outflows and helps to know how much cash is there
in hand. It is prepared by segregating the activities of the concern in three parts such as
operational, investing and financing.(Sabitova, 2018)(This shows the vital information of the
concern and help investors to know how much amount company is making and spending. So,
these statements are helpful in determining the ability of the business concern to generate cash
and whether the business would be able to make payment of its debts. It is helpful to track
financial condition of the organisation in order to make more profits.
Use of ratios in financial management :
Financial ratios are used by the entrepreneurs to evaluate the company's financial
performance and helps to improvize the weaken areas. It measures the relationship between two
or more components of financial statements. It is used to measure the results of various periods.
Various ratios used by the organisation are leverage ratios, activity ratios, liquidity ratios,
profitability ratios to measure the financial health of the business. Using the ratios has various
benefits such as it helps the company in decision making, financial forecasting, and planning in
order to make profits for the concern. (Huang, Sherraden, Johnson, Birkenmaier, Loke and
Hageman, 2021)These ratios are tools which are used by the organisation to improve the weak
areas and make continuous profits to the business concern.
Section – 3
Business Review :

PLEASE SHOW YOUR WORKING OUT OF EACH OF THESE
CALCULATIONS
 Gross profit : Revenue – Cost of goods sold
= £(189711 – 108586)
£81125
 Net profit : Total revenue – Total expenses
= £(189711 – 146655)
£43056
 Net profit increased in 2016 by 127% during the year.
 Shareholder's equity increased by 32.9% by £54343
 Quick Ratio : it has two elements in it liquid assets and current liabilities.
Comparison of two will show how quickly a concern can convert its assets into
cash. Ideal liquid ratio is 1:1. ( liquid assets include all current assets excluding
prepaid expenses and stock)
Quick ratio : Liquid Assets / Current Liabilities
= £(61000/59800)
= £1.02

 Current ratio : It has two elements current asset and current liabilities.
Comparison of two will show the liquidity position of the company.
Current ratio = Current Asset / Current Liabilities
= £(87400 / 59800)
£1.46
Analysis of the financial position of the company is done by using the ratios. Various ratios are
used by the company for tracking the performance, for instance, liquidity, leverage, efficiency
and profitability. These are used to compare the performance of business and measure the trends
of last records. Net profit of the 2015 was £18,987 and now in 2016 it has been increased by
127%. this shows the profitability to the concern. Liquidity ratios are used to check the liquidity
position of the company. This shows the cash available to meet the short term debts of the
company. Current ratio of the business concern is £1.46 which showcases that company need to
maintain its ideal ratio of 2:1. calculation of this ratio involves two elements current assets and
current liabilities. Moreover, company has to maintain its ideal ratio of 2:1 to considered healthy
otherwise, it would struggle to make payments of short term debts which would result in
insolvency.
Liquid ratio is calculated by using two elements of financial statements such as liquid assets and
current liabilities. Liquid assets means current asset will exclude stock and prepaid expenses. As
the quick ratio of the company is good which shows it would easily clear its short term debts.
So, the current position of the company is good and it is making good profits. The top
level management will use this data to frame future corporate strategy in order to boost
its productivity.
Income statement

Balance sheet

Section 4
There are various ways to improve the company's financial position of the organisation.
Below are the techniques:
Lowering the cost : It is one of the best ways to improve the financial position of the business
concern. As businesses should conduct the deep analysis of all the areas whether its production,
marketing, finance or others. The business has to see which all weaken areas can be improved.
Recover outstanding revenues : It is the best way to improve the financial condition of the
business. It becomes crucial to recover all the due payments to smoothly run the organisations.
So, it is important to keep reminding the debtors of their obligations and maintain transparency
regarding when the payment should be made. In addition to this all the due obligations will help
the business to make the payment of debts on timely basis.
Sell all the unused assets : there are times when assets become obsolete and are no longer in use.
It gives businesses an option to sell all the unwanted assets in auction houses or to any retailer.
This will generate cash to coordinate the activities and keep running the organisations smoothly.
There are various methods to sell all the unwanted assets through online stores or applications.
Give customers multiple payment options : this will boost up the sales of the business concern.
As this gives them opportunity to make payment through convenient mode. There are various

methods to make payment for instance, pay pal, bitcoin, Cheques or debit/credit cards.
Moreover, this will encourage the customers to purchase the goods and services and make
payment as per their comfort.(Neves, Vieira, Sequeira, Paiva, Janeiro, Gaspar and Gordo, 2019)
Improving the marketing tactics : As to boost up the sales, it becomes relevant for the
undertaking to promote its product through various campaigns such as email marketing, social
media platforms, pictures and video advertising and so on. This will entice consumers to buy the
products and satisfy their needs and wants. This will also help to achieve organisational goals
and boost up the productivity of the concern.
Measuring the financial performance : as it becomes important for the business to keep a
regular check on all the expenses and incomes to maintain the proper balance of the two. For this
organisations prepare various statements to see the current financial condition and keep on
improving the changes. Besides this, cash flow statement is prepared to know the cash inflows
and outflows of the organisation. And would help to get an overall understanding of operating,
investing and financing expenses.
Ratio analysis : this is a technique used by the businesses to track the performance on basis of
liquidity, profitability and efficiency of the organisation. It is a quantitative method of gaining
insight into company's current situation and comparing the company's position with its
competitors.
So, these methods can be used by the organisation to improve its financial position and
beat the competition in the market place.
Conclusion
As per the above discussion it is evaluated that financial performance of the business
concern can be improved by using the financial tools such as income statements, cash flow
statements, ratio analysis. This will help to track the performance and enhance its profits. In
addition to this, it helps to know the liquidity, profitability and efficiency of the organisations in
order to capture large market share. It gives businesses an idea of how well firm can use its
assets and can plan a future corporate strategy accordingly. It is crucial to measure performance
as its helps businesses to analyse the risk areas and keep on improving them by regularly
tracking the performance. These financial tools are used to measure business health over given
time period and can also use to compare firms across the same industry.

References
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Huang, J., Sherraden, M., Johnson, L., Birkenmaier, J., Loke, V. and Hageman, S., 2021.
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