Comprehensive Financial Analysis Report: Applied Business Finance

This report provides a comprehensive overview of financial management within a business context. It begins with an introduction to the concept and importance of financial management, emphasizing its role in controlling, planning, and administering financial resources to optimize economic benefits and ensure business growth. The report then delves into the main financial statements, including balance sheets, income statements, cash flow statements, and statements of shareholders' equity, explaining their purpose and the information they convey. Furthermore, it details the use of ratios in financial management, highlighting their significance in evaluating performance, making financial decisions, and assessing solvency, liquidity, and profitability. The report includes calculations of profit, percentage change in net profit, and key ratios like the current and quick ratios, alongside a detailed balance sheet for the year 2016. Finally, the report offers an analysis of the company's profitability, liquidity, and efficiency based on the ratio analysis, providing insights into the firm's financial health and performance.

:
Applied Business
Finance

Table of Contents
Section 1..........................................................................................................................................3
Introduction: discuss the concept and importance of financial management..............................3
Section 2..........................................................................................................................................5
Discussing the main financial statements and explain the use of ratios in financial
management.................................................................................................................................5
Section 3..........................................................................................................................................8
Section 4........................................................................................................................................11
Process through which the company can improve its financial performance...........................11
REFERENCES................................................................................................................................1
Appendix..........................................................................................................................................2

Section 1
Introduction: discuss the concept and importance of financial management
Managing financial document is vital for business as it helps them to identify the position
of company in the market. Basically, it is concerned with the business activities like controlling,
acquiring, planning, managing and administering the resources of financial concepts of the
business. It is very essential for owner to apply management principles to the financial assets of
the company. The main purpose of managing the finances into the organisation is to optimize the
economic benefits of an investment as well as focus on financial transactions happens during
their period of time (Chang, McAleer and Wong, 2020).
Importance:
The major benefit of financial management is to reduce errors and increase business
growth. In addition, with the help of financial management, the business is able to keep
operations on track so that it would help them to achieve business growth. By using financial
management, financial manager of the company is able to provide an insight to make critical
financial decisions which can help them achieve success in the competitive market. With the
support of financial management, owner of the firm is able to acquire and manage funds which
helps in future success.
To run business smoothly in the competitive world, it is very essential to focus on
financial management effectively and efficiently which helps business achieve goals and
objectives. It is the duty of financial account manager to understand financial accounting and
management of finance to achieve business goals relating to finance. It is all about managing and
growing money for the future success. Some reasons why financial management is necessary in
the organisation:
 To cut down financial costs so that company can improve profits and value of business.
 Makes employees aware of financial savings and investment for the benefit of business
 Helps in achieving economic stability and business future growth
Objectives:
Profit maximisation- Talking about its objectives, profit maximization, high efficiency,
business survival are some objectives of financial management. For company it is very important

to manage the finances effectively so that it would help them to be successful and earn
profitability.
Reduce risks- as everybody knows that there are always risks involved in running
business smoothly in competitive world. So, It is the duty of financial manager to avoid high risk
situations and achieve good opportunities this can be done from proper managing of finances.
Business survival- nowadays, companies need to make proper financial management to
survive in a long run. The primary goal here is survival of the business so companies need to
make business decisions intuitively which can help them achieve success.
Elements of financial management
Financial decision making- once a business have a proper planning and understanding of
all the concept relating to finance then they are able to make proper decision and should access
and decide on funding’s, profit distributions and allocations of resources. This can be done
through proper financial management.
Financial planning- it is a best way of calculating the capital required by the firm so
with the help of financial management finance manager can plan for long term to sustain itself.
This requires proper following of policies and regulations which is related to financial
management.
Organising- organising is all about to organise all different funds which is available with
the firm. The role of organising is very important to business when it comes to conducting the
financial management practices it is very much essential to know about different sources of
funds. Here these funds are analysed by business entity.
Controlling- control of financial aspects is necessary to run business in a smooth manner.
With the help of controlling function company can improve the utility of financial resource
adopted by business. By using this function, business is able to take suitable decisions so that
they can easily control and manage things relating to financial resources.
Functions of financial management
Investments- the company cannot just sit on funds or profits. To be in the top companies
list they must focus on business growth. Growing money is very important than saving money as
it can help business achieve sustainable growth in the competitive market. So, the finance
manager needs to allocate funds into profitable ventures or make investment that can provide
reasonable returns with safety on the investment that is made by the firm.

Money management - financial management team is responsible for managing money or
cash. The reason behind that is company needs cash for various purpose and need such as paying
bills, water bills, electricity bills, salary and wages to employees, buying raw materials and
storage costs. This can be proper managed by only financial management (Smith, Smith and
Bliss, 2020).
profit allocation - Talking about profit allocation, it plays a vital role in the business
success. Once the company makes profits, it is very important to allot them properly, so it is
done by financial manager of the firm. They focus on dividends, funds for growth in the future
and bonuses. So by using financial management concept, manager allocate profits to achieve
business goals and objectives and plan things accordingly for future.
Section 2
Discussing the main financial statements and explain the use of ratios in financial management.
To manage finance in the company, it is very important to focus on managing financial
statements. Financial statements are written records that convey the activities and transactions of
business. By using this financial statements and records of financial transaction, the financial
performance of the company can be known easily. These statement of finances is audited by
accountants, companies and government agencies to make sure that the company is stable or not
to make investment. To ensure financing, tax, accuracy and investing purpose these financial
statement is prepared. All these statement demonstrate about all different areas related to the
financial stability uphold by the firm (Cashin and et.al., 2017).
Balance sheets- this statement of financial management shows what a company owns
and what it owes at a fixed point in time. With the help of balance sheet, company is able to get
detailed information about assets, shareholder’s equity and liabilities of the company. In the
liabilities section, rent, money owned to suppliers for materials and payroll a company owes to
its employees are involved in it. In assets section, plants, inventory, property like land, building
and goodwill included in it. It also includes things that can’t be touched such as patents and
trademarks. Shareholder equity is sometimes known as net worth and capital. Basically, it is the
money that would be left if a firm face the situation of selling all of its assets and paid off all of
its liabilities. That money which is leftover belongs to the company, owners and shareholders.

Income statements- talking about this statement, with the proper management of this
statement one can have core record associate with the financial aspects (Schoenmaker and
Schramade, 2018). This is a statement demonstrate about expense and income record belong to
the venture. With the help of this income statement, the company is able to know about how
much revenue is earned over a specific time period. In short, how much the company lost or
earned over the period can be easily known by the making of income statements.
Cash flow statements
With the making of cash flow statement, company can know about outflow and inflow of
cash. This statement is very important because a firm need to have enough cash on hand to pay
its expenses and purchase assets. By using this statement, the company can easily know about
how much cash is generated by the business (Kembauw and et.al.., 2020). Cash flow statements are
divided into 3 major parts such as financing activities, operating activities and operating
activities. Investing activities- shows the cash flow from all investing activities which is
generally involves sales and purchases of long term assets whereas operating activities of cash
flow statement analyses cash flow of company from net income or loses. This is the major
difference between operating and investing activities. Financial activities include paying of bank
loan, selling of stocks and bonds are includes here.
Statements of shareholders’ equity
It is a financial document which is prepared to known about the difference between total
liabilities and total assets. With the help of this document, company is able to see how they have
been managing their finances monthly, weekly, yearly or quarterly. By using this document, the
business entity can enhance the opportunity to prove whether they are eligible for additional
investor or not. Here, major sections which needs to be taken into consideration by finance
manager are retained earnings and capital stock. The major purpose of managing statement of
equity is to determine overall stability of company and financial health of business. The basic
idea behind preparing this statement is to provide suggestion to small business owner whether
they need to invest more capital to cover shortfalls or they need to draw more profits to achieve
financial goals (Atmadja and et.al., 2021).
The use of ratios in financial management

 With the help of ratios, the company or any entrepreneurs can easily evaluate their
performance and compare it with others in the similar industry they are operating in
(Kadim, Sunardi and Husain, 2020).
 With the calculation of financial ratios, the company can make financial decisions and
improve themselves in terms of profitability.
 Ratios measure the relationship between two or more components of financial statement
which helps in getting accurate results of financial aspects.
 The main purpose of calculating ratios is to determine solvency, liquidity and
profitability of the firm. With the finance manager can know how company has
performed over a given period of time and what more improvement is needed to achieve
efficiency and profitability (Prihartono and Asandimitra, 2018).

Section 3
Calculating profit for the year 2016
=Turnover with reference to 2016- (COGS)- (total of overheads)
=189,711- 108586-38068
=43057
Percentage change in net profit between the year 2015-2016
= net profit associated with year 2016 – net profit associated with year 2015 / net profit for the
year 2015 (base year) * 100
=43057-18987/18987*100
= +126.77%
Current assets as percentage of current liabilities in 2016
=Current assets as percentage of current liabilities in 2015* (100-82) %
= 304%*18%
= 0.5472%
Equity of the Shareholders in 2016
= Equity of shareholders with reference to 2015 / 100 * 132.9
= 83803

Gross profit in 2016
= Turnover- COGS
= 189711-108586
= £81125
Net profit in 2016
Gross profit in 2016- total of overheads
= 81125-38068
= £43057
In the year 2016, increment in net profit by 126.77%
Increment in shareholder’s equity by 32.9% is 20746 which comes by subtracting 83803-63057.
Quick ratio= current assets- inventory/ current liabilities
=84349-28571/37928
=1.47
Current ratio= current asset/ current liabilities
= 84349/37928
=2.22 times
Balance sheet 2016
Particulars Total
£0
Non Current assets
Intangible assets 5,793
Tangible assets 52,812
Investments 10,693
69,298
Current assets
Stocks 28,571
Trade debtors 26,367
Short term deposits 14,779
Cash at bank and in hand 14,632
84,349
Current liabilities

Bank loans and overdrafts 9,610
Trade creditors 19,493
Other Creditors 678
Income tax payable 3,585
Other creditors including tax and social
security 4,562
37,928
working capital 46,421
Total assets less current liabilities 1,15,719
Non Current Liabilities
Bank loans and overdrafts 16,506
Other Liabilities 7,304
23,810
Provisions for liabilities 8,094
Net assets 83,815
Capital and reserves
Called up share capital 39,436
Reserves 1322
Retained earnings 43,057
Total equity 83,815

Analysis of company's profitability, liquidity and efficiency with the help of ratio analysis
On the basis results of ratio analysis, company’s liquidity, efficiency and profitability has been
determined.
Liquidity analysis of a company- from the calculation of quick ratio and current ratio,
liquidity of company can be known easily. It has been noted that there is a very sharp fall in the
liquidity position of the firm. By viewing this ratio, company’s inability to meet their obligations
is noted down which needs to be maintained because it will arise within a period of time as it
requires enough liquid assists against the balance in current liabilities (Ameliawati and Setiyani,
2018).
Profitability- from the calculation of profitability analysis, the financial performance of
the firm is quite stable in terms of gross profit margins. The fluctuations are favourable which
indicate that sales have increase which has also given benefit to net profit. The increment in net
profit generated by the firm due to lower overhead costs incurred is indicated by non-operating
costs and lower operating expenses.
Efficiency- reduction in the non-operating and operating expenses of the firm shows the
improve efficiency of the company. As the lower cost of business operations allows for higher
efficiency just because of this company will earn higher profitability. From the given case study,
it can be evaluated that net profit of the firm is increase because of higher efficiency in terms of
operating costs and non-operating reduction (Karadag, 2017).
Section 4
Process through which the company can improve its financial performance
 In order to improve its financial performance company can make arrangement for
liquidity by selling off all the assets which are of no use and not giving any kind of
return. By selling off all assets and reducing unnecessary expenses company can save
itself from creating extra obligations.
 Using new marketing techniques will be helpful for the company to attract more
customers as by this company can sell its products or services by giving them at good
pricing strategy. Both raising prices and reducing prices would be suitable for the
company to earn good profitability in done properly.
 In addition, company can also extend better offers and discounts to its debtors so that
whatever liquidity has been stuck with the debtors can be easily obtained on time without

facing any issue for payment concern. This will help company to not go for financial
support from external sources to run business operations. Finally, reduction in overhead
costs will help company retain higher cash balances from this quick and current ratio can
be easily make improvement.