Applied Business Finance: Definition, Financial Statements, Ratio Analysis, and Strategies for Financial Performance Improvement

BSc (Hons) 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
Submitted by:
Name:
ID:
Contents
Introduction p
1

Section 1: Definition and discussion of the concept and
importance of financial management p
Section 2: Description and discussion of the main
financial statements and explain the use of ratios in
financial management
p
Section 3: Using the template provided p-p
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 p
iii. Using Excel completing the Balance Sheet p
iv. Using the Case study information describing the profitability,
liquidity and efficiency of the company based on the results of
ratio analysis p
Section 4: Using examples from the case study describing
and discussing the processes this business might use to
improve their financial performance p
Conclusion p
References
Appendix p
2

Introduction
Financing is one of the key requirements for starting a business. Adequate capital and
efficient management of finance are required throughout the life of the business and also
upon sale or closure of the business. Funds must therefore be controlled, regulated and
monitored according to procedures at every stage of the life cycle of business. Companies
that control their finances in a better way experience augmented growth, while those that do
not control their financial resources and operations well typically experience losses or
declining profits (Andrews, McNaught and Samji, 2018). The following report analyses the
concept and importance of financial management. It also describes the main financial
statements and the uses of ratio analysis in financial management. It further analyses the
given case study and its financial statements.
Section 1: Definition and discussion of the concept and
importance of financial management
Concept: Financial management is that function of businesses which is concerned with
allocating available resources of finance to improve success and return on investment attained
of the businesses. Finance experts design, organize, and manage all the transactions within a
company. They emphasis on entrepreneurial initial investments, debt financing, venture
financing, public offerings, or funding from other sources. Financial experts are also
accountable for the optimal allocation of funds to enhance the financial growth and stability
of an enterprise (Cai and Gao, 2019).
Importance: An enterprise's financial management ascertain objectives, develops policies,
establishes procedures, implements programs, and allocates budgets for all financial activities
of an organization. Optimized financial management ensures companies have sufficient funds
at every stage of their business activities. The significance of financial management can be
seen in its core mission:
 Accessibility of adequate finances
 Balance income and expenses for ensuring business stability
 Ensuring high and prompt return
 Create and execute plans for growth and expansion of business
 Securing a buffer fund protects the organization from market uncertainty
Section 2: Description and discussion of the main
financial statements and explain the use of ratios in
financial management
Financial statements are written files and records that enables in recording
organization transactions and the monetary overall performance of the commercial enterprise.
These statements are audited by authorities, corporations and accountants. The predominant
purpose of financial statements offer the financial position, overall performance and cash
flow of an enterprise which is beneficial for concluding to decisions (Hartono and Arief,
2018). The financial statements comprise the:
1. Balance sheet- It represents monetary assets value managed by an enterprise. It
additionally presents data regarding liquidity and solvency of a business enterprise that is
3

beneficial in predicting the potential of the business enterprise to satisfy its financial
commitments as they fall due. It illustrates the assets, liabilities and shareholder funds of the
business enterprise. The total assets is equal to the total of liabilities and shareholder fund. It
evaluates the commercial enterprise condition. To use balance sheet business enterprise
ascertain the financial ratios. The assets and liabilities may be categorized into components
such as non current and current. Non current implies retaining in the business for a long
period of time and current implies that are retaining for short period of time.
2. Profit and loss account- It represents the outcomes of operations of a business enterprise
for an accounting period, it depicts the overall performance of an business enterprise,
especially its profitability. It consists of the incomes and expenses that incurred within the
given time period. This is prepared according to the cash basis or accrual basis. It compares
the profit and loss account in numerous accounting period.
3. Cash flow statement- It is a crucial aspect within the financial statements. It presents data
regarding the adjustments in cash and cash equivalents of an enterprise. The cash flow
statement comprise of three types of activities that are operating, investing and financing
activities. The operating activities includes the cash flow related to the operations of the
business. The investing activities includes the cash flow related to purchase and sale of fixed
assets. The financing activities includes the cash flow regarding the bank loans, issue of share
capital, etc. The total of the three results in net cash flow of business. Adding it to the
opening cash and cash equivalent gives the closing balance of cash and cash equivalents
(Karnita, Kurniawan and Suangga, 2019).
Section 3: Description and discussion of the main
financial statements and explain the use of ratios in
financial management
Ratio analysis is the evaluation of various financial data in a company's financial
statements. They are primarily utilized by outside analysts to ascertain several prospects of
the company, such as: Profitability, liquidity and solvency. Analysts evaluate a company's
financial performance based on current and historical financial statement data. They utilize
information to ascertain whether a business financial health is trending upwards or
downwards, and how is it compared to other competitors (Khan and Hussanie, 2018).
Uses of Ratio Analysis
1. Comparisons: One use of ratio analysis is to understand a company's position in the market
by comparing a company's financial performance to similar companies in the industry.
Obtaining financial metrics such as prices/earnings from known competitors and comparing
them to company metrics can assist management determine market gaps and assess
competitive benefits, strengths and imperfections. The business can use that information to
formulate decisions aimed at enhancing the company's position in the market.
2. Trend line: Businesses can also utilize ratios to determine if there are trends in their
financial performance. Established enterprises gather data from their financial statements
over various reporting periods. The resulting trends can be utilized to anticipate the path of
forthcoming financial performance or to determine anticipated financial disruptions that
could not have been predicted using a single reporting period indicator.
3. Operational efficiency
4