Business Finance: Importance of Financial Management and Ratio Analysis

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. Analyzing the performance of the company based on financial statements.....................7
SECTION 4................................................................................................................................8
CONCLUSION..........................................................................................................................9
REFERENCES.........................................................................................................................10
APPENDIX..............................................................................................................................11

INTRODUCTION
Business finance refers to the management of the business’s financial resources
which helps in ensuring that the business carries out its business in an effective and optimum
manner. This is very important for the firm to effectively management its financial resources
which helps in accomplishing the desired objectives. This report helps in effectively
understanding and analyzing the relevance of financial management for the business. In
addition to this, it covers the key financial statement of the firm and providing
recommendations for improvising the performance of the company through ratio analysis.
SECTION 1
Defining and discussing the concept and importance of financial management
The financial planning is an important part of every business organization which
wants to remain in the market and grow. It involves carrying out the strategic plans pertaining
to accomplishment of the desired goals which also involves directing and controlling. In
addition to this, incorporates the application of the various managerial principles in regard to
the financial assets. The goal of financial management is to keeping an enough stockpile of
the assets relating to doing the everyday business activities and alongside that guaranteeing
that the investors of the organization get a better yield on the sum contributed by them. This
assists an association in guaranteeing that the limited resources are used by the business
association in an ideal manner (Siekelova and et.al., 2017). The financial management
accounts for determining the estimated amount of capital which is being needed by the
business. It is mainly used within the areas which are in need of it like the business expansion
plan, development of the business infrastructure, investment related decision making. Based
upon this, a decision is being undertaken pertaining to the type of fund which should be
utilized by the business in order to meet with capital requirement. At this stage, it is the main
responsibility of the financial managers in respect to determining the right combination of the
debt and equity funds resulting into not negatively affecting the capital structure.
There are a few choices which is being accessible with the financial manager
relating to deciding the sources from which to acquire the funds. Consequently, the most
ideal alternative is being chosen which will result into accomplishing more noteworthy
earning possibility with less event of cost. Another significant part of monetary
administration is to meet with the fundamental measure of the assets through the method of
assigning the assets according to the requirements. Likewise, any change in the financial
decision that either increments or diminishes the sum apportioned can likewise be imposed.

The goal behind this to keep up the norm of the business alongside accomplishing higher
development and solid monetary position. Another significant factor which makes it vital for
each business association is that it upholds in better administration of the money which is
required for meeting with the essential basic expenses of the entities like that of payment of
the salaries or making payment of the utility expenses, buying the material and stocks,
payment to account payables and so forth. Subsequently, to put it plainly, financial
management doesn't just include the planning and acquisition of assets however it likewise
includes practicing control on the business accounts by utilizing different strategies, for
instance, financial reporting, ratio analysis.
SECTION 2
Discussing the main financial statement and use of ratios
Financial statements
There are 3 most important financial statements which is being used by the
businesses in determining the financial performance and the position of the entity. The 3 most
common financial statements which are very useful and linked to each other are stated below.
Income statement
The first thing which the investors are interested into looking at is the income
statement or profit & loss statement. This provides information on the performance of the
entity for a specific period ended and is even compared with the other years as well, resulting
into gathering the relevant information (Al Muhairi and Nobanee, 2019). It helps in
determining the gross profit generated from the business and after which the operating
expenses are deducted which results into deriving the net profit amount. It makes use of the
accrual accounting concepts, matching principle and helps in determining the profit of the
business.
Balance sheet
The balance sheet is also known as the statement of position which provides
information in regard to the assets and liabilities of the company at a particular period of
time. This section involves the information on the cash and cash equivalent which is needed
to be matched with the closing balance within the cash flow statement. It helps in analyzing
the changes made in the each and every account and helps in making adjustment in the
balance sheet based on the profit derived from the income statement. It results into providing
the picture of the true financial position of the entity.
Cash flow statement