Business Finance: Concept, Importance, Financial Statements, Ratios

Business Finance

TABLE OF CONTENTS
INTRODUCTION......................................................................................................................3
SECTION 1................................................................................................................................3
Defining and discussing the concept and importance of financial management...................3
SECTION 2................................................................................................................................4
Discussing the main financial statement and use of ratios.....................................................4
SECTION 3................................................................................................................................5
i. Information on business review..........................................................................................5
ii. Showing income statement as per the template.................................................................6
iii. Showing balance sheet as per the template.......................................................................6
iv. Analysing the performance of the company based on financial statements.....................7
SECTION 4................................................................................................................................8
Describing the ways which can improve the financial performance of company.................8
CONCLUSION..........................................................................................................................9
REFERENCES.........................................................................................................................10
APPENDIX..............................................................................................................................11

INTRODUCTION
The business finance refers to the term which defines the management of the
financial resources of the company leading to meeting with the staged aims and objectives of
the business. Handling and managing of the business finances is important in order to make
sure that everything goes well and is within the budget created by the businesses. This report
presents the concept of financial management and its significance to the business. In addition,
the main financial statements and the use of ratio analysis to the business and the ways of
improving the financial performance and position of the business.
SECTION 1
Defining and discussing the concept and importance of financial management
The financial management is a combination of various managerial functions like the
planning, organising, directing, controlling resources of the business entity. And therefore, it
is a crucial part of every business to effectively manage it with ultimate care. The
requirement of the fund is mainly due to the reason of expanding the business or the product
category, improving the operational capacity of the business, making an investment and so
forth. The extent of management of the financial resources is wide as it is concerned about
the various areas such as securing of the accounts, appropriate usage of these monetary
assets, dealing with its customary stock, keeping up the liquidity and dividend choices to
fulfil the expectations of the shareholders (Kostel and Samoilikova, 2019). There are various
other decisions which are being undertaken under the concept of financial management. The
obtaining of funds must be done in a compelling way where the sources of acquiring money
to be utilized keeps up the legitimate balance of debt and equity funds within the capital
structure, limits the risks and boosts the profits for the organization and the least expensive
sources should be applied so the expenses of such procurement can be controlled. Therefore,
it is important to note that proper balance is maintained among the debt and equity funds
which results into both dilution of ownership and the fixed financial burden for the company
is under control.
In addition to this, the company is required to effectively analyse the investment
proposals available by using the investment appraisal tools which helps in determining the
feasibility of it. Along with that, the working capital related decisions are being undertaken
which helps in ensuring smooth conduct of the business which results into enhancing the
credibility along with improved liquidity position of the business (Gallo and et.al., 2018). The
financial management work is huge for the organization in creating performance and future

development possibilities. On the off chance that the monetary assets of the organization are
appropriately kept up in the business then the manageability and the general worth is created
which makes the business a more productive endeavour. It helps in ensuring that the cost of
acquisition is limited and subsequently the profits are expanded which can additionally
contribute in the accomplishment of the company’s goals and the wealth maximisation
expectation of the investors. Therefore, on an overall basis, it aids the financial soundness,
better liquidity, validity to assemble upper hand in the market.
SECTION 2
Discussing the main financial statement and use of ratios
Financial statements
The financial account function of a business organization is in respect to the
preparation and presentation of the financial statements of the concern. These statements
show the result of the activities that are being led by the organization over time as far as
profits, liquidity and monetary situation of the association is concerned. It very well may be
found out that these financial reports that are set up by the organization helps the internal and
outer clients in the vital decision making. Aside from it likewise ascertain that the business
entity is effective achieving the every one of the vital legal compliances, sustainable
development, corporate social obligation and green bookkeeping. There can be an assortment
of the fiscal summaries that are addressing the valid and reasonable perspective on the
business but the 3 main financial statements are given below.
Income statement
This statement provides the most important information pertaining the revenue
generated, cost of goods sold, and the net profit of the business (The Three Major Financial
Statements: How They're Interconnected. 2021). This is also considered by the investors and
the other users in the process of undertaking the decisions. It is further used as the
comparative base in order to compare it with the competitors or with the past years.
Balance sheet
The balance sheet of the company provides for the most important aspect of the
business which involves the financial health and well-being of the entity. It involves the
assets which is being owned by the company and the liabilities which the company owes to
the 3rd party or its owners. The amount of asset side and the liability side matches which
proves the double entry system of accounting.
Cash flow statement