Applied Business Finance: Importance, Financial Statements, Ratios, and Improvement Strategies

This report covers the concept and importance of financial management, financial statements, and the use of ratios in financial management. It also includes an analysis of financial performance and strategies for improving financial performance. The report is based on the course code BMP3005 and is relevant to Business Management with Foundation students studying Applied Business Finance.

Business Management with Foundation
BMP3005
Applied Business Finance
The concept and importance of financial
management and the processes businesses
might use to improve their financial
performance
1

Contents
Introduction 3
Section 1: Definition and discussion of the concept and
importance of financial management 3
Section 2: Description and discussion of the main financial
statements and explain the use of ratios in financial management
4
Section 3: Using the template provided 5-7
i. Completing the Information on the ‘Business Review Template
(Ensure that you display your calculations for this detail)
p
ii. Using Excel producing an Income Statement for the Sample
Organisation (see Case Study). This should be included within your
appendices 5
iii. Using Excel completing the Balance Sheet 5
iv. Using the Case study information describing the profitability,
liquidity and efficiency of the company based on the results of ratio
analysis 6
Section 4: Using examples from the case study describing and
discussing the processes this business might use to improve their
financial performance 7
Conclusion 8
References
Appendix 9
2

Introduction
Financial management refers to the procedure of performing the functions related to the
finance in an organization. It involve several practices such as arranging finance from different
sources, proper utilization and acquisition of funds and many more. The application of general
management principles to the financial resources of organization is the responsibility of financial
management (Kliestik and et. al., 2021). Ensuring effectiveness in the financial activities of firm is
the major aim of financial management. Along with this, all the finance related accounts and
books have been also managed by the them. This report include the value of financial
management, concept of major financial statement along with the use of financial ratios in
financial management. In addition to this, it also deals with the analysis of financial performance
of business organization on the basis of given case study. In order to bringing improvement in the
performance of business firm, several of strategies have been developed which are included in the
execution review.
Section 1: Definition and discussion of the concept and
importance of financial management
Financial management is a procedure which involve several steps i.e. planning,
organizing, controlling and monitoring of resources of funds in order to achieving the
organizational goals and objectives. It plays major role in controlling the practices related to
finance which include appropriate usage of funds, accounting, risk assessment, accounting
and many others. Below mentioned is the brief discussion of importance of financial
management:
Importance of financial Management
 Financial Planning: Financial management perform the functions of analyzing the
needs of funds in the organization. O0n the same basis, the organization take effective
decisions related to the usage of available funds (LIEN, N.T.K., 2021). All these
decisions comes under the process of financial planning which assist the organization
to achieve success because it is necessary for the management to spend funds after a
proper planning in order to get huge return.
 Improve profitability: The main aim of a business fir is to enhance the profitability of
organization and it is based on spending funds on appropriate place. There are several
devices which can help the business firm to improve the profitability. Some of the
effective financial control devices include cost-volume-profit analysis, ration & trend
analysis, budgetary control and many others.
 Increase the value of organization: financial management also has its importance in
improving the wealth of investors and the business as well. All the statements and
accounts of business organization have been managed by the financial management,
which focus on the maximization of earning profit (Terziev and Klimuk 2021). The
wealth of investors also improve in the case of improvement in the profit earning of
an organization.
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 Acquisition of funds: Financial management have a strong relationship with the
acquisition of required funds to the organization. Acquisition of funds is important for
a business firm as it make available the financial sources at a low cost to the
management of organization and this acquisition have been done by the financial
management.
Section 2: Description and discussion of the main financial
statements and explain the use of ratios in financial management
It has been found as necessary for the business organization to prepare books and accounts
which include all the transactions performed in the business. Financial statements are the
books which an organization maintain by recording their daily transactions. Financial
statement also help the business organization in identifying the fiscal health (Siziba and Hall
2021). It include all transactions which is being used in analyzing the financial health of
organization. Financial manager of a business firm is responsible for keeping the record of all
transactions. In addition to this, using the appropriate tool of auditing is also the
responsibility of financial manager. It is necessary to have authenticity in the statements
which have been published by the business organization. Below mentioned re the major
financial statements:
 Profit and loss statement: It refers to a book in which the entire summary of
expenses, cost and revenue which are incurred within a particular time duration. The
abilities of a business organization can also be identified which plays an important
role in maximization of profit. It is possible by understanding the actions related to
the enhancing the profitability of organization.
 Income Statement: General public want to know about the financial information of a
business organization. Hence, they use income statement which is a result of
development of organization of a specific duration of time period. This statement
involve the recording of inflow and outflow of new and incurred assets in order to
generate revenue. By deducting the expenses along with taxes, the organization can
analyze the profitability of organization (Tafsir, M., 2021).
 Balance Sheet: It is defined as an important statement which shows the liabilities and
assets of company. In order to analyze the financial position of organization at a
particular point of time, balance sheet plays an important role.
 Statement of Cash Flow: This statement is made for showing all the practices related
to finance of a particular time period. Along with this, it represent the source from
where the organization is getting funds.
Uses of ratio in financial management
 Comparison: Ratio analyses are being used by the business organizations for
comparing the financial performance of organization with the another companies
which are performing its operations in the same industry. This comparison help
the management in in identifying the strength and weakness, market gap along
with the competitive advantages (Hendriarto, P., 2021). Improvement of position
of organization in the particular market is possible by doing comparison of
relevant information.
 Trend Line: Ratio analysis of a business organization is used by the management
in identifying the trends in the financial performance. Financial department
collect the data of previous years in order to anticipate the directions of financial
performance in near future.
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 Operational efficiency: Financial ratio analysis is also used for analyzing the
degree of efficiency in management . Over and under utilization of financial
resources are being also analyzed through the use of ratio analysis.
Section 3: Using the template provided:
v. Completing the Information on the ‘Business Review Template
(Ensure that you display your calculations for this detail)
Continuing operations have been increases by 5.6%, during the financial year. The reason
behind it is the acquisition of device in businesses on 1 May 2015. its affect can be easy
seen on the total efforts of 2016.
vi. Using Excel producing an Income Statement for the Sample
Organisation (see Case Study)
This is covered in appendix
vii. Using Excel completing the Balance Sheet
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viii. Using the Case study information describing the profitability,
liquidity and efficiency of the company based on the results of ratio
analysis
Profitability Ratio: It is defined as the financial parametric quantity through which, the
business organization assessing the capability of generating revenue of th organization during
a particular duration of time period (HAMMAMI and ALKHALDI 2021). It shows the
method which the company is using for properly utilizing the assets which help the
organization in generating revenue and providing value to the shareholders. Net profit
margin, gross profit margin, return on assets and m,any others are the ratios which comes
under profitability ratio.
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Efficiency Ratio: this ratio is being used by the business organization in order to identify the
abilities of organization related to the use of resources through which the organization can
generate higher profit. Efficiency of repaying debt is also analyses through this ratio.
Liquidity Ratio: This ratio shows the capabilities of organization of paying the obligations
of debt along with describing regarding the solvency of organization (FMVA and et. al.,
2021). These ratios have been calculated on the basis of current stock, current liability and
stock.
Section 4: Using examples from the case study describing and
discussing the processes this business might use to improve their
financial performance.
Financial performance of organization is found as an important and long term feature which is
based on the performance. It also help the investors in taking investment related decisions
(Calafiore and Giudici 2021). Above mentioned calculation state that:
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 Reduction of up to 82% in the current assets to the current liability have been
analyzed. This analysis has been done on t6he basis of previous year. Outflow of cash
have been analyzed as too high which also leads to losing liquidity.
 An increment in net profit by 126.77% have been identified due to decrease in non
operating cost including administrative and interest cost.
 Growth of organization can be analyses because the organization is performing well
in customer satisfaction. It also leads to the retention of employees in the
organization.
Modification which can be finished are mentioned below:
 Proper and full use of resources leads to the decrease in expenses in addition to the
increase in prices. It influence the investors to do investment in the organization.
 Improving the stock turnover by minimizing the stock. It result in the increase in
working capital requirement of organization.
Conclusion
From the above report, it has been concluded that the financial management occupy
an important role in a business firm because of this several functions which are related to the
funds of organization such as allocation of financial resources, making financial decisions,
proper utilization of funds and many more. In order to maintain the record of all the
transactions and keep the records to analyze the financial performance of organization. Ratios
are being calculated on the basis of real facts and these ratios are being used by the business
organization in various ways. All of these uses of ratio analyses are explained above.
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References
Calafiore, P. and Giudici, E., 2021. HYBRID VERSUS HYFLEX INSTRUCTION IN AN
INTRODUCTORY FINANCE COURSE. International Journal of Education
Research, 16(1), pp.40-52.
FMVA and et. al., 2021. BUDGETING REVISITED. Strategic Finance, 102(11), pp.24-31.
HAMMAMI, S. and ALKHALDI, F., 2021. Enterprise Systems in the Post-Implementation
Phase: An Emergent Organizational Perspective. The Journal of Asian Finance,
Economics and Business, 8(3), pp.619-628.
Hendriarto, P., 2021. Relevance on islamic principle law with application at the field: Review
of islamic banking publication in Indonesia. International Journal of Business,
Economics & Management, 4(1), pp.47-53.
Kliestik and et. al., 2021. Earnings management in V4 countries: The evidence of earnings
smoothing and inflating. Economic Research-Ekonomska Istraživanja, 34(1),
pp.1452-1470.
LIEN, N.T.K., 2021. The Effect of Trade Openness on Foreign Direct Investment in
Vietnam. The Journal of Asian Finance, Economics and Business, 8(3), pp.111-118.
Siziba, S. and Hall, J.H., 2021. The evolution of the application of capital budgeting
techniques in enterprises. Global Finance Journal, 47, p.100504.
Tafsir, M., 2021. Sustainable Finance: A Strategy to Increase Good Corporate Governance
and Company Value in Banking Industry. ATESTASI: Jurnal Ilmiah
Akuntansi, 4(2), pp.154-162.
Terziev, V. and Klimuk, V., 2021. Improving social performance of a resource cooperation
model-Science Education Business Power-based on “Smart Specialization”
principle. Available at SSRN 3851269.
Appendix:
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Income Statement
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