Concept and Importance of Financial Management

Applied Business
Finance

Table of Contents
INTRODUCTION...........................................................................................................................1
Section 1...........................................................................................................................................1
Concept and importance of financial management................................................................1
Section 2...........................................................................................................................................2
Main financial statement........................................................................................................2
Use of ratios in financial management...................................................................................3
Section 3:.........................................................................................................................................4
The profitability, liquidity and efficiency of the company based on the results of ratio analysis
................................................................................................................................................4
Section 4:.........................................................................................................................................4
The process can be adopted by company to improve their financial performance................4
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................6
APPENDIX......................................................................................................................................8

INTRODUCTION
Financial management is basically a vital concept for a frim which is associated with
effective strategic planning along with ensuring proper organising, directing and controlling of
all the financial undertaking of a firm (Enriquez, Sánchez-Triana and López, 2021). The
financial management is important and vital for a firm to ensure effective use of management
principles in order to have better management of assets and other financial resources. The current
project comprises of discussion about the concept and importance of financial management along
with describing about the main financial statement and use of ratio in financial management.
Further, completion of business review template us also made along with describing the
profitability, liquidity and efficiency of the company. At last, a discussion about processes to
improve financial performance of a company is also there.
Section 1
Concept and importance of financial management
The concept of financial management can be defined as the area of function within an
organisation that is related and concerned with the overall profitability of a firm. Financial
management is conserved with the overall strategic planning, organising along with effectively
directing and controlling all the financial undertaking within a firm or institute. Thus, the concept
of financial management comprises of all the calculation related with expenses along with cash
and credit transaction taken within a firm (Fernandes, Borges and Caiado, 2021). Further, the
concept of financial management comprises of ensuring effective planning, organising, directing
along with controlling the financial activities and transaction within a firm for better
procurement and utilisation of funds. Thus, an analysis can be made out that financial
management comprises of applying management principles to ensures effective planning of
financial assets and business transaction to carry out its objective in most satisfactory manner in
order to maximize the value of firm.
Importance of financial management
Financial management is a most important aspect of any business which plays a vital role
in running an organisation and business more successfully through effectively applying
management principles in order to properly manage all financial assets. Financial management is
important and significant for a firm as it helps in maintaining enough and proper supply of funds
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for a company along with ensuring improved return on investments by the way of efficient and
optimum utilisation of funds (Oware and Mallikarjunappa, 2021). Apart from this, financial
management is also important for creating and having real time safe investment opportunities
through leading improved planning and better organising of finance and other monetary funds.
Further, importance of financial management can be evaluated from various other aspects and
reasons which are listed as below:
 Financial management helps an organisation in having effective financial planning with
support better asset and resource management along with improved acquisition of funds
(What is the importance of Financial Management?, 2018).
 Apart from this, financial management helps a company to effective utilise and allocate
its funds along with supporting and assisting with more effective and critical financial
decision making to have improved profitability.
 Financial management is also important to provide better economic stability through
increasing overall value and profitability of firm.
Section 2
Main financial statement
Financial statements mainly comprise of reports which are prepared by the management of
a company to present and reflect true financial performance and position of a firm at a given
specific point of time. The main financial statement which are prepared by a company within an
accounting year are described and discussed as below:
Balance Sheet- It is one of the most vital and important financial statement which reports
and provide information about the assets, liabilities and overall equality of shareholder of a
company at a specific point of time (Majerowska and Spigarska, 2021). Thus, preparation of
balance sheet is important to provide a summary of overall assets and liabilities of a form at a
particular moment that also reflects basis of computing rates and return to effectively evaluate
and present true financial position of a firm.
Income statement- It is a financial statement which provides information about the overall
profitable of a business for a given reporting period. Income statement is also known as profit
and loss statement which shows the revenue minus expenses and loses during a particular period
thus, provide information about gross and net profit of a firm.
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