Applied Business Finance: Concept, Financial Statements, Ratios, and Improvement Process

Applied Business Finance

TABLE OF CONTENTS
INTRODUCTION .........................................................................................................................3
SECTION 1 .....................................................................................................................................3
Discussing the concept and importance of financial management ............................................3
SECTION 2 .....................................................................................................................................4
Discussing the main financial statements and explaining the use of ratios pertaining to
financial management.................................................................................................................4
SECTION 3......................................................................................................................................6
Using the templates provided......................................................................................................6
Income statement ......................................................................................................................6
Balance sheet...............................................................................................................................6
Calculating ratios:.......................................................................................................................7
SECTION 4....................................................................................................................................10
Explaining the process to improve financial performance of company...................................10
CONCLUSION..............................................................................................................................11
REFERENCES .............................................................................................................................13
APPENDIX....................................................................................................................................14

INTRODUCTION
In the context of business unit, accounting and finance is considered as one of the most
important aspect as It helps in getting information about company’s performance. For gaining
deeper insight about the effectualness of company’s policies and strategic framework company’s
prepare financial statements at the end of an accounting period. By this company can assess the
extent to which performance is improved as compared to prior years. The present report is based
on case scenario which depicts the concept of financial management and its importance within an
organization. Further, it will develop understanding about the different types of financial
statements which organization drafts for evaluating performance. It also entails how ratio
analysis technique can be used for identifying the areas where business unit needs improvement.
SECTION 1
Discussing the concept and importance of financial management
Financial management may be defined as a strategic framework or tool which firm
undertakes for fund procurement and utilization (Bulturbayevich and et.al., 2020). In business
unit, finance manager plays a vital role in taking decisions about investment, cash management
etc by applying the theories and principles of financial management. Managerial finance
provides high level of assistance to the manager in maximizing organizational alue and
shareholder’s wealth.
Significance of financial management
 By undertaking the approaches of financial management firm can ensure smooth
functioning of operations. Moreover, it helps in making proper allocation of funds by
avoiding aspect pertaining overspending.
 It also provides high level of assistance to the firm with regards to planning and
acquisition of funds (Kembauw and et.al., 2020). By this, firm can decide about the
sources of funds which proves to be suitable for meeting financial requirements.
 Company can improve profitability through the means of effective financial
management. As, financial management practices such as variance analysis enable firm

to assess deviations take place in the existing performance. In this way, by taking
corrective measures on time business organization can improve profitability.
SECTION 2
Discussing the main financial statements and explaining the use of ratios pertaining to financial
management
Financial statements may be served as a formal record of financial activities and
transaction pertaining to specific business. There are mainly four statements which business units
prepare with the motive to assess financial position and satisfy information need of stakeholders
(Brigham and Houston, 2021).
Income statement
This refers to the statement which exhibits profitability gained over the expenditure
including both direct and indirect. It mainly furnishes information about revenue, gross and net
profitability pertaining to specific time period. By preparing income statement management team
can assess actions that need to be taken for controlling expenses and maximizing profitability.
Statement of financial position
Balance sheet is one of the main financial statement which firm drafts at the end of
reporting period for assessing assets and liabilities. It helps firm in recognizing ways through
which company can improve liquidity, solvency and other aspects through using assets &
liabilities (The four basic financial statements, 2021).
Assets = Current + Fixed
Liabilities: Current liabilities + Long term debt + Shareholder’s capital
Current assets section of balance sheet includes details about cash, debtors, prepaid
expenses etc. On the other side, machinery, furniture and other intangible aspects fall under the
category of fixed assets. Elements of liabilities section mainly includes long term debt, current
obligations (creditors, outstanding expenses etc) and shareholders’ equity (net profit + capital).