Applied Business Finance: Explaining Financial Management, Financial Statements, and Ratio Analysis

This article explains the concept and importance of financial management, financial statements, and ratio analysis in Applied Business Finance. It covers the use of financial ratios, such as leverage, liquidity, profitability, and operations ratios. The article also includes a case study to calculate ratios and analyze how to improve financial performance. The subject is Applied Business Finance, and the course code and college/university are not mentioned.

Applied Business Finance

Contents
INTRODUCTION...........................................................................................................................................3
SECTION 1....................................................................................................................................................3
Explaining concept and importance of financial management................................................................3
SECTION 2....................................................................................................................................................4
Describe the financial statement and the use of the ratios used in the financial management..............4
SECTION 3....................................................................................................................................................5
(i) Complete the Business Review Template............................................................................................6
(ii) Produce the income statement using Excel........................................................................................6
(iii) Complete the Balance Sheet using Excel...........................................................................................7
SECTION 4....................................................................................................................................................7
By considering the example of the case study, calculate the ratios and analyse how can the financial
performance of the business can be improved.......................................................................................7
CONCLUSION.............................................................................................................................................10
REFERENCES..............................................................................................................................................11

INTRODUCTION
Financial management is a systematic process an association's data material in such a
manner that the business may achieve success. In today's world, there is more rivalry than ever
before, which must be fought by properly allocating, employing, and assessing a firm's assets.
The current paper will cover the notion of money planning as well as its relevance (Fan and
Chatterjee, 2019). It will focus on explaining key financial statements and how to use statistics in
financial planning. It will focus strongly on meeting the criteria of a specific example. This will
entail procedures and make changes in regions where they are missing.
SECTION 1
Financial management is the technique and practice of handling financial systems that direct
and coordinate a business's activities in order to capture overall monetary assets to achieve
organizational quality and power goals established via a strategic mindset. Financial
management, but in the other hand, is described as "the top management dealing with the
budgeting, generating, regulating, and administration of the firm's funds." Financial Management
(FM) is concerned with working with and evaluating money and investments in order to make
strategic decisions for a company. FM is critical for having a greater understanding of how a
firm operates and achieving healthy fiscal circumstances. It aids in the development of initiatives
and a lengthy strategy to ensure that goals are met (Guironnet, Attuyer and Halbert, 2016).
Importance of financial management
It is a vital activity since it aids in strategy development, organizing, coordinating, and
regulating financial endeavors in order to ensure that right principles are followed. FM is
considered vital since it helps the organisation retain a sufficient flow of cash while also
guaranteeing that investors receive a greater return on investment. Furthermore, it'll become
feasible to achieve larger profit by maximizing resource use and developing selling investment
opportunities. This has a huge impact on the quantity of investment needed. By formulating
organization’s financial laws and regulations, working capital may be correctly formed.
• Financial forecasting: Financial administration is needed to perform to organize and build
effective human finances in a corporation. It assesses a business’ needs in light of its accounting

records. Furthermore, budgeting makes it easier to identify locations where its company should
consider improvements. As a result, there is a longer service and income durability.
• Assists in the achievement of corporate objectives: Financial management aids in the general
upkeep of a firm's resources. It aids a firm in determining its needs and assigning funds in a
financially appropriate manner. It increases operational effectiveness and decreases inefficiency,
which has a substantial influence on the company's management (Himawan, 2019).
SECTION 2
The revenue, cash, changes in equity and balance sheets are the four primary audited
financials. Every financial report contains critical information that is extremely beneficial to
consumers, allowing them to make more informed decisions.
• An income statement is created by including all costs and earnings so that users may determine
whether or not a firm is profitable. It assists in forming judgments about the effectiveness of
operational methods in order to increase one's capability to spot unnecessary factors and so make
good decisions.
• A cash flow statement is a declaration that summarizes all of the revenue that has been
collected and distributed from operating and financial resources. Net cash flow helps to make
important decisions by identifying effectiveness in order to satisfy needs. Investments, funding,
and operations are the three methods from which it is derived (Hollensen, Kotler and Opresnik,
2017).
• A balance sheet is among the most significant financial statements since it allows for a proper
assessment of a business’ financial using simplified information. It is created at the conclusion of
the fiscal year to provide a clearer picture of the company's monetary condition so that objective
and truthful decisions may be made.
• The owners' capital position of a firm is shown in the changes in equity statement over the
fiscal quarter. It's essentially a reconciling of the beginning, balances, and stability of the owners'
ownership. This is an important financial report that aids in obtaining information about a certain
time frame.

Use of the financial ratios
In financial management, ratios are significant because they allow for the information
gathering about current operational excellence so that remedial measures may be taken. It aids in
determining the current fashion line so that future path may be determined. This means
acknowledging relationships between elements. It assists in evaluating a firm's productivity to
the prior year's success in order to make adjustments. Financial management ratios play a crucial
part in establishing appropriate courses of action, allowing for increased efficiency.
Leverage Ratio: It aids financial management in determining how much debt the company can
utilize to conduct out its operations and make investments it has. It is used to illustrate the
proportion of the firm's profits that are funded by lenders (Kader, Mulyatini and Setianingsih,
2019).
Liquidity Ratio: This metric demonstrates to finance administration that the company has
adequate money to cover brief commitments, which is useful in evaluating prospects for
advantageous financing. It also represents the firm's resources to pay the brings significant
creditors, that can only be accomplished using the firm's highly liquidity position.
Profitability Ratio: This ratio is used by the company's monetary managers to assess how much
money is generated from each dollar of sales. Its analysis is critical in regaining control of the
business's running expenditures, which include taxes to the government that can be played. It is
also significant to financial managers in terms of indicating the level of tax that is paid when
profit is earned with each quantity of ownership.
Operations Ratio: This is a ratio that aids in the overall suggestion of the number from which
determines the buyers' cash service. It is a measure of how long it takes for contractors to be
paid.

SECTION 3
(i) Complete the Business Review Template.
(ii) Produce the income statement using Excel.
Shown in Appendix.

(iii) Complete the Balance Sheet using Excel.
SECTION 4
Calculate the ratios
Calculations:

Net profit ratio: Profitability margins also known as net profits show what more total income or
income is earned as a percentage of total sales. The profit margin is the ratio of a company's or
business industry's statutory net profit. The net profit margins are normally measured as a
proportion, but they may also be expressed numerically. The net profit margin % shows how
much profit a firm makes per total revenue. It is a measure that is used to evaluate the economic
success. It determines an organization’s sustainability by less entire organization’s costs from its
sales income (Katrin and Vanel, 2020).
Net profit margin = 43057 / 189711 * 100
= 22.69%
Gross profit: Researchers examine an organization's financial ability by looking at its
competitiveness, following removing the prices of inventory; this is the quantity of funds
remaining left. delivered from their sales (COGS). The profitability of the company, also known
as the gross profit percentage, is usually expressed as a percentage of sales. The income of a
company's principal business is represented by this measurable statistic. It's computed through
deducting an corporation's operating expenditures from sales.
Gross profit margin= 81125 / 189711 * 100
= 42.76%
Current ratio: The current percentage is a financial metric that is used to assess a company's
ability to meet quick obligations. The current ratio is a statistic for analysing the condition of the
firm. The percentages that are now considered suitable vary by industry. A borrower favours a

large output percentage more than a reduced current percentage in many cases because a large
voltage portion suggests that the firm is more likely to pay the loan back. Investors sometimes
don't benefit from high current values. When a profit of the company is exceedingly high, it
might indicate that its current assets or short-term liabilities are quite significant borrowing
capacities are being underused (Bulturbayevich and et.al., 2020). This consistency % ensures that
a company's performance is measured in terms of short-term obligations. It consists of current
responsibilities and liabilities. The current proportion will be less than 1 if current
responsibilities exceeded available funds. Whereas if current percentage is less than one, the
corporation may find it difficult to satisfy its short-term obligations. But at the other extreme,
certain firms may function despite liquid assets of the less than one. If product convert into
money faster than accounts payable is past due, the using of the company would readily maintain
below the first. The purchases expenditure is used to analyses items in order to sell them for a
greater amount. After that the deal might conduct revenues than the inventory value on the
balance sheet. Organization can collect income from consumers before paying their suppliers
may be able to consider reduced voltage charges.
Current ratio = Current assets / current liabilities
= 54349 / 37928
= 2.22:1
Quick ratio: The quick percentage is an assessment of a firm's capability to satisfy brief
liabilities using the most readily available assets, and it offers information about its summary
financial standing. It's also known as the acid test percentage since it reveals a financial position
of a business off current debts rapidly using approaching capabilities. This ratio with effective
researching is referred to as a "acid test." It represents an ability to pay short financial standing
and allows for the estimation of quick borrowing capacity. A one-to-one ratio is a fantastic short
proportion. The accessibility % is a measure for assessing a firm's accessibility (Kembauw and
et.al., 2020).
Quick ratio = (Current assets – inventory) / current liabilities
= (84349 – 28571) / 37928
= 1.47: 1

From the above percentage report, a design or manufacturing degree generates a considerable
quantity of money in relation to its major operations. It may be demonstrated by looking at a
company's gross profit percentage, as long as the company has a high gross sales percentage.
Along either end of the spectrum, the firm must enhance its profitability, which may be
measured by reducing excessive expenditure. A corporate accounting situation is also stable. As
a consequence, the company should increase its efficiency by decreasing waste and ensuring
high levels of accuracy, allowing it to expand its economic knowledge (Siminica, Motoi and
Dumitru, 2017).
CONCLUSION
As per the above report it has been concluded that financial management is the essential job
of managing a client's money, according to the study. It aids in the examination of a company's
critical component and verifies that it fits the criteria for examination. It is the activity of
attempting to maintain records of the money sustainability of a corporation. It aids in the
development of a firm's lengthy financial objectives, allows for informed decision, and provides
budgeting and resource data to the organisation. In the context of allotment, net profit is
examined. The bank account, cash flow disclosures and operating earnings are the three
categories of finance asserted elements. Aside from that, ratio analysis aids in the monetary
evaluation of a company.

REFERENCES
Books and Journal
Fan, L. and Chatterjee, S., 2019. Financial socialization, financial education, and student loan
debt. Journal of Family and Economic Issues. 40(1). pp.74-85.
Guironnet, A., Attuyer, K. and Halbert, L., 2016. Building cities on financial assets: The
financialisation of property markets and its implications for city governments in the
Paris city-region. Urban Studies. 53(7). pp.1442-1464.
Himawan, A. F. I., 2019. Digital marketing: peningkatan kapasitas dan brand awareness usaha
kecil menengah. Jurnal Analisis Bisnis Ekonomi. 17(2). pp.85-103.
Hollensen, S., Kotler, P. and Opresnik, M. O., 2017. Social media marketing: a practitioner
guide. Opresnik Management Consulting.
Kader, M.A., Mulyatini, N. and Setianingsih, W., 2019. MODEL PEMASARAN DIGITAL
MARKETING FB_Ads dan EMAIL MARKETING DALAM MENINGKATKAN
VOLUME PENJUALAN. Jurnal Ekonologi Ilmu Manajemen. 5(2). pp.299-305.
Katrin, K. and Vanel, Z., 2020. Strategi Pemasaran Komunikasi Digital Marketing Platform
(Cashbac) untuk Meningkatkan Daya Beli Konsumen. SOURCE: Jurnal Ilmu
Komunikasi. 6(1). pp.14-25.
Bulturbayevich, M. B and et.al., 2020. Modern features of financial management in small
businesses. International Engineering Journal For Research & Development. 5(4), pp.55.
Kembauw, E. and et.al., 2020. Strategies of Financial Management Quality Control in
Business. TEST Engineering & Management. 82. pp.16256-16266.
Siminica, M., Motoi, A. G. and Dumitru, A., 2017. Financial management as component of
tactical management. Polish Journal of Management Studies. 15.

APPENDIX
Income statement