Importance of Financial Management in Business

BUSINESS FINANCE

TABLE OF CONTENTS
INTRODUCTIO N......................................................................................................................................3
MAIN BODY..............................................................................................................................................3
SECTION 1.................................................................................................................................................3
Defining and explaining importance of financial management................................................................3
SECTION 2.................................................................................................................................................4
Describing important financial statements...............................................................................................4
Uses of ratio matrices..............................................................................................................................4
SECTION 3.................................................................................................................................................5
i. Completing business review template..............................................................................................5
ii. Income statement.............................................................................................................................6
iii. Balance sheet...............................................................................................................................6
iv. Computation of ratios..................................................................................................................8
SECTION 4...............................................................................................................................................12
Explaining processes to improve current financial performance of specified business..........................12
CONCLUSION.........................................................................................................................................13
REFERENCES..........................................................................................................................................15
APPENDIX...............................................................................................................................................17
EXCEL FILE.............................................................................................................................................18

INTRODUCTIO N
Financial management is crucial concept which helps business to accomplish objective of
optimization utilization regarding monetary resources. The changing scenarios of world
require strategic approach with effective financial management to attain success. Current
case study will include concept & importance of Financial Management (FM). Main
financial statements will be shown in present report and description regarding uses of
ratios will be presented. The business review template, income statement & balance sheet
as per the requirement of case study will be reflected. Present report will give emphasis
on measures for improvement of financial position.
MAIN BODY
SECTION 1
Defining and explaining importance of financial management
Financial management is refereed as important component for attaining progress and
success. FM is procedure which involves planning, organizing and formulating suitable approach
for fro deriving desirable financial position. In addition to company receives various advantages
through its significant characteristics.
 It enables more effective business process within the organization which helps in
increasing productivity and profitability. In addition to this, inclined operational
efficiency provides opportunity for expansion in other areas of functional areas.
 Complete compliance with legal obligation becomes possible by as adhering such
financial practices guided by FM in business (Lussuamo, Lopes and Oliveira, 2020).
 Continuous improvement can be exerted by having systematic comparison of actual
outcomes with predetermined objectives so that lacking areas can be identified by having
deviation analysis (Importance of financial management, 2021). It helps in gaining
sustainable development with static growth of financial position.
 Technology integration with financial resources increases workplace efficiency which
aids in obtaining effectiveness. Research and development progression helps in attaining

suitable allocation, optimization, etc of fund collected for the purpose of carrying of
business operation.
 Bring all other options into consideration for sources of funds by recognizing its cost and
risk helps in attaining different types of platforms which can fulfill the mission and vision
of company with having proper liquidity.
SECTION 2
Describing important financial statements
FSs (financial statements ) are essential for having understanding regarding prevailing
business operations. Company contribute resources for preparing these financial statements so
that it can present accurate data of business practices. The following are four main FSs:
 Income statement is used vastly by stakeholders to have knowledge regarding income and
expenditure so that fair profit generating capacity can be identified. It is prepared by
breaking down indirect income and expenditure which helps in calculating net profit or
loss so that required action can be taken (Palepu and et.al., 2020).
 Balance sheet is usually formulated at the end of financial year to know accurate liquidity
position. This represents the detail regarding capital reserves, retained earnings, non &
short term current assets and liabilities, etc. in addition to this, it assist in determining
stability of organization.
 Equity shareholders statements presents the change in capital from the beginning to end.
The firm can analyses the fair position of organization by having consideration into these
figures.
 Cash flow statement provides information of companies in and out flow which also
contribute in having appropriate knowledge about firm’s efficiency. Decision making
policy can be improved by taking influencing factions into consideration.
Uses of ratio matrices
Ratios are important for analyzing business activities in simple and appropriate manner
as data is presented in percentage and times which helps in having deep understanding. It is
utilized for several purposes which can benefits the firm. Comparison can be done by having two
or more year’s information so that in depth insights can be obtained (Prodanova and et.al., 2019).