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

Applied Business Finance

Table of Contents
INTRODUCTION...........................................................................................................................3
SECTION 1......................................................................................................................................3
Concept and importance of financial management-....................................................................3
SECTION 2 .....................................................................................................................................4
Explaining the major financial statements and the usage of ratios in financial management.....4
SECTION- 3 ...................................................................................................................................5
Business review template-...........................................................................................................5
Income statement........................................................................................................................6
Balance sheet ..............................................................................................................................7
Calculation of profitability, liquidity and efficiency ratios.........................................................9
SECTION- 4 .................................................................................................................................11
Processes that the business might use to improve the financial performance-.........................11
CONCLUSION..............................................................................................................................12
APPENDIX....................................................................................................................................13
REFERENCES-...............................................................................................................................1

INTRODUCTION
Applied business finance refers to the funds that are required by the owners of the
business to meet their needs including funds for commencing the business, purchase of capital
assets or to manage the shortage of cash faced by the organization. Financial management is the
practice of managing the company's finance so that the desired goals are achieved. The present
report will deal with the concept and importance of financial management. It will include the
main financial statements and computation of ratios (Bendell and Doyle, 2017). At last, the
report will also highlight the various processes that businesses might use to improve their
financial performance.
SECTION 1
Concept and importance of financial management-
Financial management includes planning, directing, organizing and controlling the financial
operations of an organization. The main objectives of financial management includes-
 Ensuring that enough funds are supplied to the organization.
 Efficient allocation and utilization of resources (Schoenmaker and Schramade, 2018).
 Creation of better investment opportunities for the investors.
 Expanding the wealth of the shareholders.
Importance of financial management-
 It helps the companies in financial planning- Financial planning includes calculating
the capital requirement of the organization including formation of financial policies and
assessing whether the objectives are achieved or not.
 It helps in proper allocation and utilization of funds- After the acquisition of funds, it
must be ensured that they are allocated wherever necessary.
 It helps in improving the profitability of the company- By managing proper cash flow
and assessing business performance on time to time, financial management can lead to
higher profits.
 Management of taxation- Financial management help the companies to maintain proper
books and eliminating tax burden including finding the means to reduce tax burden of the
organization (Financial Management Explained: Scope, Objectives and Importance.
2021).

 Controlling business costs- Sound financial management help in reducing costs through
proper budgeting.
 Predicting risks and mitigating them- Through forecasting future events, financial
management helps to understand the risks by comparing the actual results with the
forecasted results to identify if there are any areas that needs to be taken care of.
 Creating capital reserves- Financial management is helpful in success of business as it is
beneficial in creation of capital reserves in the books of accounts of the company.
SECTION 2
Explaining the major financial statements and the usage of ratios in financial management
Financial statements are the official written records of all business operations that a
company undertakes in order to survive and earn profits. It provides vital information about the
financial performance and position of the company (Lessambo, 2018). There are three major
financial statements prepared by an organization which are discussed below:
Income Statement This statement records all the direct and indirect revenues and
expenses for a time period. It is prepared to calculate the profit
earned or loss incurred by the company in carrying out its
business operations. It depicts firm's performance over time.
Income statement can be used in many ways, that is, company
can examine the sales item which are most profitable, expenses
it can reduce, cash left after all expenses, etc.
Balance Sheet Balance sheet is the most important financial statement
because it shows financial health by calculating all assets,
liabilities and equity funds of a company on a particular date.
It helps in taking various business decisions like managing the
company's debt, maintaining the liquidity position, assessing
the net value, etc. (Bragg, 2018).
Cash Flow Statement CFS calculates funds that is flowing in and out of business
from different activities (operational, financial and investing)
during a particular period. Cash flow statement will provide

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).