Importance of Financial Management in Business Finance

Business Finance

Table of Contents
INTRODUCTION...........................................................................................................................1
SECTION 1......................................................................................................................................1
Financial Management and its Importance..................................................................................1
SECTION 2......................................................................................................................................2
Discussing financial statements and use of ratios........................................................................2
SECTION 3......................................................................................................................................3
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................6
APPENDIX......................................................................................................................................7

INTRODUCTION
Business finance refers to funds and credit utilised by firm in achieving business goals
and objectives. Finance is essential for business from purchasing of raw material to deliver goods
and service to customer (Baloch and et.al, 2019). Business finance include procurement of funds
to utilise it in order to meet business requirement. It provide funds for business working capital
requirement, capital requirement and also provide diversification of funds. This report include
financial management and its importance in business. It also include different financial statement
and use of ratio in financial management.
SECTION 1
Financial Management and its Importance
Financial management is the process of managing finance and activities related to finance
in an organisation (Schönborn and et.al, 2019). It make sure availability of funds to meet daily
business requirement and utilisation of funds in an effective manner. Financial management
include decision making related to investment, purchase of fixed assets, source of funds etc. It
helps in planning, organising and controlling of operations related to finance. It also include
decisions related to return on shareholder's investment. It provide information related to profit,
loss, cost of company, so manager will take decisions accordingly. By it manager will get to
know in which activities cash of business is invested and reduce wastage of funds. Financial
management play important role in the success of business which are as follows:
Financial Planning: Financial management helps in financial planning of business. It
include planning related to source of business, budget, requirement of funds etc. It helps business
to prepare for difficult situation due to change in environment. Financial planning helps business
in achieving predetermined goals of business. It control over cost, expenses, credit and income of
firm (Frizzo-Barker and et.al, 2020).
Procurement of funds: Financial management helps the firm in procurement of funds
from cheaper source of funds suitable to business requirement (Mian and Sufi, 2018). Funds are
important for business to carry out operation in an enterprise. It provide availability of funds
when business has requirement of funds. It is needs for day to day operation, investment, paying
off creditors, purchase of raw material etc.

Utilisation of funds: Financial management helps the manager of company in optimum
utilisation of funds as it allocate funds in way to utilise it effectively. It provide information
related to allocation of funds so the firms know where is funds are invested and helps to reduce
cost of business.
Financial decisions: Financial management helps the manager in taking financial
decision as it will affect functioning of organisation. Impact of financial decision will be on other
department of an enterprise as activity of every department require funds. These decision helps
firm to achieve long term goals of business (Saura, Herráez and Reyes-Menendez, 2019).
Increase profitability: Financial management helps to utilise funds properly to increase
profitability of business. As it control the cost of business through budgetary control, cost
analysis and other tool which improve profitability of business. It also promote saving in an
organisation which decrease the cost of borrowing funds.
SECTION 2
Discussing financial statements and use of ratios
Financial statements refer to the indicators that helps the enterprise to conduct the
reporting period and helps in giving the proper picture of financial position and performance of
the company (Eren, Taspinar and Gokmenoglu, 2019). There are three types of financial
statements available that helps in planning the activities and functions are as follows-
 Income statements- This statement reflects the execution of an project over patch, the
yield of the institution and stimulation that required to achieve that result. This shows the
profit and loss account that justify the fiscal point of company that indicates the elaborate
financial gain and expenses. This is important part to compare the revenues and expenses
from different variations in operating cost, research and technology cost and raw material
which affect the result of company.
 Balance sheet- This is very important part of financial statements that shows the final
position of company by depicting clear and precise picture of management. This includes
the asset and liabilities, equity presented in monetary expression and this need to be show
equal at end of the calculations. There are some equation that display that economical
communicator pictured by the asset are equivalent to the indebtedness and superior. So,