Applied Business Finance

This study covers the fundamentals of finance management, important financial statements, and ratio analysis applications. The analysis of the financial statements of a company shows that it has the financial capacity to meet its obligations and debts. Suggestions to improve the firm's fiscal health include adhering to corporate productivity standards, forecasting industry patterns, setting aims and targets, implementing a comprehensive strategy, and monitoring progress.

Applied Business
Finance

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................1
SECTION 1.....................................................................................................................................1
Finance Management Fundamentals...........................................................................................1
Financial Management's Significance.........................................................................................1
SECTION 2.....................................................................................................................................3
Important Financial Statements and Ratio Analysis's Usage......................................................3
Key Financial Statements............................................................................................................5
Ratio analysis applications..........................................................................................................5
SECTION 3.....................................................................................................................................6
Calculations and Analysis of Financial Statements (from the template given).........................6
SECTION 4.....................................................................................................................................7
Suggestions to improve the firm's fiscal health are given with instances for the instance..........7
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
The funds of a firm are its soul. This study's principal goal is to help readers comprehend
how well accounting information manage monetary capacity (Bouveret, 2018). We first talked
about the foundations of fiscal administration. Three major accounting reports are then covered.
The idea of fiscal comparisons has also been researched. The profitability, liquidity, and
efficiency ratios are the 3 different sorts of statistics. The scenario paper study concludes by
outlining the company's predicament and offering various suggestions.
SECTION 1
Finance Management Fundamentals
Funds and stocks are only a small part of what accounting entails. The phrase "the
discipline and technology of asset administration" is frequently used for it. The acquisition and
use of resources to achieve a definite objective is central to many financial concepts. Finance
administration, in its wider definition, relates to a range of actions used to raise or maintain the
capital worth of every single aspect of the company, a smaller firm, or a corporate. With a
defined goal in view, finance management is focused with the acquisition, funding, and control
of resources. If a company is for profitable or otherwise, finance management does have an
impact on every aspect of how it operates. It carries out a variety of tasks, such as asset
management, money collection, and fiscal success assessment. As a result, it has grown to be an
essential part of all kinds of companies. Finance planning is the act of creating long-term
strategies for a person or business to assure a sustainable working capital. It includes the
management and upkeep of capital instruments. Finance planning is also the practice of
determining and reducing vulnerabilities. It is also the application of corporation administration
concepts to a firm's finance operations. Good fiscal management ensures the provision of high-
quality assets and regular upkeep that maintains the business operating efficiently. The
development and growth of the firm may suffer from poor financial management. It can be
outsourced in a variety of methods, such as by hiring the ideal employee, a freelancing auditor,
or a certified public accountant (Foyeke, Olusola and Aderemi, 2016).
Financial Management's Significance
One of the most crucial aspects is handling the business's financing. No business could
operate effectively sans fiscal management. Only if fiscal management is provided the

consideration it merits in today's activities could a corporation's fiscal goals be achieved. The
sustainability of a corporation depends on effective fiscal management at each stage of the
organisation and in every situation. There are many causes why finance management is
important; some of them are as described in the following:
 Savings Marketing is essential for maximising profits and income in order to accomplish
reserves. Individuals and institutional contributions can be encouraged and mobilised
through fiscal management. The efficiency of a business' activities is significantly
dependent on solid finance management that enables it to deploy and conserve additional
money.
 Enhancing the company's worth because wise finance management and preparation could
be extremely advantageous to both companies and shareholders. Every company's main
goal is to maximise its revenue, and the more lucrative a company is, the more revenue it
generates for shareholders and the entire country (Henager and Cude, 2016).
 Productivity metrics are used to measure how well finance management produces
monetary results. Monetary statistics serve as the baseline to assess a firm's growth and
performance. Monetary choices that enhance chance would decrease a stock profits,
whereas those that enhance revenue would improve a firm's productivity.
 Financial Planning is useful in identifying a firm's fiscal requirements, which then results
in finance planning for the entire organisation. Finance planning is an important aspect of
managing a business.
 Funding as it is the practice of securing a company's required funding is known as
finance management. Seeking a very highly cost-effective causes of financing is a crucial
component of raising capital in finance management.
 Finance decision-making aids are used to simplify the process for employees of a
business to undertake wise monetary selections. Due to the direct linkages with other
divisions, including advertising and production, etc., a firm's entire finance activity would
be affected by a given fiscal decision.
 Maximizing Earnings because a firm's capacity to remain profitable exclusively depends
on how effectively it maintains and distributes its assets. Fiscal management employs a
variety of strategies to help a company boost its revenue (Ivanovich, 2020).

 Investing funds sensibly increases a corporation's operating effectiveness because funds
are more effectively utilised and distributed when it is used sensibly. Financial
professionals who administer resources effectively could reduce a corporation's cost of
capital whilst still raising its worth.
SECTION 2
Important Financial Statements and Ratio Analysis's Usage
Balance sheet:
2016
Total
£0
Non Current assets
Intangible assets 5,793
Tangible assets 52,812
Investments 10,693
69,298
Current assets
Stocks 28,571
Trade debtors 26,367
Short term deposits 14,779
Cash at bank and in
hand 14,632
84,349
Current liabilities
Bank loans and
overdrafts 9,610
Trade creditors 19,493
Other Creditors 678
Income tax payable 3,585
Other creditors
including tax and social
security
4,562
37,928
working capital 46,421
Total assets less
current liabilities 1,15,719
Non Current

Liabilities
Bank loans and
overdrafts 16,506
Other Liabilities 7,304
23,810
Provisions for
liabilities 8,094
Net assets 83,815
Capital and reserves
Called up share capital 39,436
Reserves 1322
Retained earnings 43,057
Total equity 83,802
Business Review:
2016 20
15 Change
£’000 £’000 %
Turnover (continuing operations) 1,89,711 1,79,58
7
5.60
%
Profit for the financial year 43057 18,987 126.7%
Shareholder’s equity 83802 63,057 32.90
%
Current assets as % of current liabilities 222% 30
4%
-
82%
Customer satisfaction 4.5 4
.1
10
%
Average number of employees 649 61
8
5
%
Gross Profit = £81125
Net Profit = £43057
Net Profit increased in 2016by126.7 during the year.
Shareholders’ equity increased by 32.9% by £83802.
The company’s “quick ratio”(Current Assets(excluding stock)divided by Current Liabilities)is
1.47:1
The company’s “current ratio”(Current Assets divided by Current Liabilities.)is 2.22:1.
Calculations:

Gross profit = sales – COGS = 189711 – 108586 = 81125
Net Profit = Revenue – total expenses = 81125 – 38068 = 43057
Profit = 43057 – 18987 = 24070
Current ratio = current assets / current liabilities = 54349 / 37928 = 2.22:1
Quick ratio = (current assets- stock) / current liabilities
= (84349- 28571) /37928 = 1.47:1
Equity = 63057 / 20745 = 83807
Increase in profit = 63057 / 32.9% = 20745
Key Financial Statements
It shows an assessment of past accomplishment and project growth prospects. Such claims
are seen as indicators of an organization's growth and health (Kwilinskyi, Shteingauz and
Maslov, 2020). The following are the 4 main fiscal statements:
 An organization's resources, shareholders' ownership, and debts are summarised on a
balance sheet at the conclusion of the fiscal cycle. A balance sheet is structured so that
the sum of a company's resources equals the sum of its debts and ownership. The second-
most significant fiscal statement, which is typically considered as the second-most
significant assertion in finances, contains data on a firm's capitalization and
current assets.
 All inflow and outflow funds during the fiscal quarter is summarised in the cash flow
statement. It could offer a helpful comparison to the income statement whenever the
stated profit or loss doesn't really accurately represent the company's cash flows. This
statement can be included in financial statements which are communicated to others.
 The term's earnings, expenses, and profits/losses are displayed on the income statement.
Given that it contains data on an institution's operational effectiveness, this is
occasionally considered the most crucial of the major fiscal statements. An income
statement displays a corporation's earnings over a given time span.
Ratio analysis applications
By creating interconnections among different parts of financial statements, most frequently
the income statement and the balance sheet, profitability statements act as effectiveness measures
(Levy, Bouheni and Ammi, 2018). Ratio assessment is a useful tool for evaluating a company's
activities and fiscal standing, but it has its limitations and should be used with care. Ratios are a

practical managerial technique for supplying the data and figures needed for long-term strategy
and evaluating management efficiency. Ratios can be used to demonstrate correlations and
patterns in fiscal accounting. The following perspective claims that ratios are important and
helpful to a range of target categories.
 Comparison as the ratio assessment method is employed to determine a company's
competitive standing by contrasting its fiscal performances with that of its rivals.
Management can identify and evaluate competitive openings, advantages, and
vulnerabilities utilising financial ratios like price/revenue from well-known competitors
and commercial relationships. The management can then use this information to provide
fresh suggestions for how to improve the corporation's competitive standing.
 Trending Assessment: Companies could likewise analyse important figures to search for
similarities in their fiscal performances. Reputable businesses collect information from
fiscal statements across an extended length of period. A one accounting period's worth of
relevant information could be used to anticipate upcoming growth and spot unexpected
effects (Sari and Fatimah, 2017).
 Operational Efficiency: Management could analyse the degree of regulating efficacy and
budget responsibility using fiscal measures. Unnecessary expenses must be collected for
wasted assets including motors, property, and structures. Based on the condition of a gdp,
fiscal assets could potentially be misused or misused.
 Position of Liquidity: Several customer groupings could determine or assess a
corporation's ability to meet long-term or short-term liabilities employing ratios.
SECTION 3
Calculations and Analysis of Financial Statements (from the template given)
Net profit margin = 43057 / 189711 * 100
= 22.69%
Gross profit margin= 81125 / 189711 * 100
= 42.76%
Current ratio = Current assets / current liabilities
= 54349 / 37928
= 2.22:1

Quick ratio = (Current assets – inventory) / current liabilities
= (84349 – 28571) / 37928
= 1.47: 1
 In this instance, the firm's current ratio is 2.22 and its quick ratio is 1.47. A current ratio
of greater than two is thought to be outstanding in the majority of industries. According
to the group's quick ratio of 1.5, this ratio is very good. If the quick ratio is greater than 1,
it means that the company has enough money in hand to pay down all of its obligations.
 Effectiveness of the corporation: A firm's asset turnover, which is essential to
effectiveness, increased by 5.6% during 2015 and 2016. The quick test and current ratio
clearly show that a firm has the financial capacity to meet its responsibilities and debts.
 Company profitability: Based on the aforementioned analysis, company income has
increased by around 126.77% since 2015. The firm's net profitability has increased
significantly (Villasanti and Passino, 2016).
 Company liquidity- Employing liquidity metrics, investors could determine how
effectively a company could meet its short-term fiscal obligations. A company could file
for insolvency if it is unable to pay short-term financial obligations.
SECTION 4
Suggestions to improve the firm's fiscal health are given with instances for the instance
To improve the corporation's efficiency, the administration of the organization must adhere
to the underlying corporate productivity standards, especially in consideration of the
contemporary situation. The initial stage in creating a strategy for forecasting the forecast and
industry patterns is identifying the corporation's strategy. To do this, it is necessary to first assess
the firm's current situation that offers a foundation for forecasting prospective events and
marketplace patterns. Create aims and targets for the company which would be crucial in the
upcoming. Make sure that the business's objectives are achieved by developing and
implementing a comprehensive strategy. The much more important stage is to monitor what's
going and how things are going. Ideally, the data collected from the questionnaires would be
utilised in the decision-making procedure.

CONCLUSION
In every firm, fiscal management is essential. Every company that lacks finance
management cannot function. A fiscal statement is a report intended to assess the previous
operation of a business and forecast its prospective expansion. Even though ratio assessment is a
very helpful technique for assessing a company's activities and fiscal condition, it has some
restrictions which call for discretion and wisdom. With the help of fiscal reports and ratio
assessment, this study examines the situation of the company. In consideration of the current
climate, recommendations have been developed to enhance the company's efficiency.

REFERENCES
Books and journals
Bouveret, A., 2018. Cyber risk for the financial sector: A framework for quantitative assessment.
International Monetary Fund.
Foyeke, O.I., Olusola, F.S. and Aderemi, A.K., 2016. Financial structure and the profitability of
manufacturing companies in Nigeria.
Henager, R. and Cude, B.J., 2016. Financial Literacy and Long-and Short-Term Financial
Behavior in Different Age Groups. Journal of Financial Counseling and Planning,
27(1), pp.3-19.
Ivanovich, K.K., 2020. About some questions of classification of institutional conditions
determining the structure of doing business in Uzbekistan. South Asian Journal of
Marketing & Management Research. 10(5). pp.17-28.
Kwilinskyi, O., Shteingauz, D. and Maslov, V., 2020. Financial and credit instruments for
ensuring effective functioning of the residential real estate market.
Levy, A., Bouheni, F.B. and Ammi, C., 2018. Financial management: USGAAP and IFRS
Standards. John Wiley & Sons.
Sari, R.C. and Fatimah, P.R., 2017. Bringing voluntary financial education in emerging
economy: Role of financial socialization during elementary years. The Asia-Pacific
Education Researcher, 26(3), pp.183-192.
Villasanti, H.G. and Passino, K.M., 2016. Feedback controllers as financial advisors for low-
income individuals. IEEE Transactions on Control Systems Technology, 25(6),
pp.2194-2201.

APPENDIX
Income statement:
Turnover 3 1,89,711
Less cost of sales:
Material Cost 42,597
Production Cost 15,231
Labour Cost 50,758
1,08,586
Gross profit 81,125
GP %
= 42.8
Less Expenses:
Administrative expenses 13,751
Other operating overheads 22,374
Interest 1,943
Total Overheads 4 38068
Profit/(loss) for the financial
year 43057 NP%= 22.7