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

APPLIED BUSINESS FINANCE

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
SECTION-1.....................................................................................................................................1
Concept of financial management and its importance.................................................................1
SECTION-2.....................................................................................................................................1
Major financial statements...........................................................................................................1
Use of ratios in financial management.........................................................................................2
SECTION-3.....................................................................................................................................3
Income Statement.........................................................................................................................3
Balance Sheet...............................................................................................................................3
Liquidity, profitability and efficiency of the company................................................................4
SECTION-4.....................................................................................................................................5
Processes that can be used to improve the financial performance...............................................5
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6
APPENDIX......................................................................................................................................6

INTRODUCTION
Financial management refers to the planning, organizing, directing, monitoring and
control regarding the financial functions and undertakings of the business. It refers to managing
the financial assets through controlling the costs and expenses of the business. The project shall
show the basic understanding of financial management and its significance for the business. It
shall highlight the major financial statements used by the business to represent its profitability
and the financial position. It reflects the ratios that are depicting the liquidity, profitability and
efficiency position of the company. The project shall be depicting the income statement and
balance sheet of a company and also represent the processes that can be applied to improve the
financial performance.
MAIN BODY
SECTION-1
Concept of financial management and its importance
Financial management is an important aspect of the business where the financial
functions and undertakings are managed by incorporating the whole procedure starting from the
planning for arrangement of finances, directing, effective utilization in the business and
monitoring and control of the same (Nguyen, Viet and Loan, 2021). It assists in the critical
decision-making of the business regrading the capital structure, maintenance of the liquidity,
supply of funds, investment and the financial decisions. Since finance is the life blood of the
business and all the operations are dependent over it (What is the importance of Financial
Management, 2021). The finance should be used in a manner where the costs can be minimized
and the profits can be maximized. This shall also be helpful in fulfilment of the organizational
objectives like profit maximization, shareholder's wealth maximization and developing the future
growth prospects.
The most significant importance of financial management are:-
 Financial management helps in planning the finances for the future based on the trends as
shown by the ratio analysis. It helps in preparing a blue print regarding the need of
finance, time period, cost and respective returns that the project can determine (Jovanovic
and Vasicek, 2021).
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 The decisions related to financial management maintains the efficient supply of finances
in the organization avoiding delay due to short supply or excess availability or the idle
money.
 It plays major role in deciding the capital structure of the company by balancing the debt
and equity in the business. It should be such that does not dilute the control as well as
maintains leverage in the company.
 An efficient portfolio of investment is decided which maximizes the returns that are
generated by the company. For this the risk taking capacity is ascertained and accordingly
the equity debt ratio is decided and applied on the finance (Nabijonov, 2021).
 It sorts to maintain the liquidity position so that the company can smoothly manage its
short term and long term debt obligations with maintaining the credibility of the business.
 An efficient organization of the funds in the business helps in achieving the operational
efficiency which further leads to generating economies of scale and also reducing the cost
per unit (Cheuk, 2021). It also helps the business in developing competitive edge in the
market which enhances the growth prospects of the business.
SECTION-2
Major financial statements
The financial statements that are prepared by the company represents the financial health
and well-being of the organization. These are used by the internal and external users in the
process of decision-making. They show the performance of the company as outcome for the
operations that are undertaken throughout the year (Apridasari, 2021). There are majorly four
types of financial statements that are prepared by the company:- Income Statement:- The income statement also known as profit and loss account shows
the profitability of the business for a particular period. It is prepared by decreasing all the
costs, expenses and losses from the revenues earned by the company. It helps in
evaluating the profitable and non-profitable ventures of the business and the returns that
can be extended to the shareholders in the form of dividend. Balance Sheet:- A balance sheet containing the assets and liabilities of the business
shows the financial position of the company (Zhao and et.al., 2020). It is a snapshot of
the financial state of the company and facilitates comparison of the different entities in
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