Importance of Financial Management in Business Finance

This report discusses the concept of financial statements, the importance of financial management in business finance, and key finance performance indicators. It also explores the process that businesses use to improve their financial performance.

Applied Business
Finance

Contents
INTRODUCTION.....................................................................................................................................4
SECTION 1................................................................................................................................................4
Concept of financial statements & importance of financial management................................................4
SECTION 2................................................................................................................................................6
Difference types for financial statements:................................................................................................6
SECTION 3................................................................................................................................................7
Company’s key finance performance indicators:.....................................................................................7
SECTION 4................................................................................................................................................8
Discuss the process which business use for improve its financial performance.......................................8
CONCLUSION..........................................................................................................................................9
References................................................................................................................................................10

INTRODUCTION
The process of managing and controlling the funds and other monetary forces is known
as Business finance. This filed of is mainly related with buying useful raw material, assets and
useful material which is beneficial in increasing the economic value of company (Beck and
Levine, 2018). Internal department of uses different sort of financial statement in order to
evaluate the financial strength and position of company within an accounting year. In this report,
a hypothesis company named Dryhand have been selected in order to better understand the
importance of financial management.
This report includes, discussion related with importance and concepts of FM, useful financial
accounts and ratio analysis. Calculation related income statement, balance sheet by using
Business Review Template.
SECTION 1
Concept of financial statements & importance of financial management
Financial statements provide helpful in assessing real expenses, profits, sales, liabilities, and
assets during an accounting period, which explicitly facilitates taking useful decisions to achieve
competitiveness. The income statement, cash flow statement, as well as balance sheet seem to be
the three key annual statements that help to report all corporate activities in a consistent manner
such that a monetary benefit or development can be calculated. Many of these annual reports are
compiled using the relevant financial framework or structure, making the internal audit transition
easier. Accounting information seem to be the documents that are prepared for a specified
balance sheet in order to evaluate position of the company operations, which involves the profit
and loss. Financial reports are used in companies. The net income determines the operating
income generated by a company for a sales transaction. The capital structure is a rundown of the
financial situation that displays the firm's liabilities and assets. These statements aid the
organisation in understanding its role. The firm uses financial records with the assistance of a
report and a ledger, resulting throughout the progress of the firm. Ratio model is used to analyse
the market role of a company. It is the preparation of financial information that aids in the
understanding of different forms of business positions (Bendell and Doyle, 2017). Liquidity,
profitability, and competitiveness rates are also included. It aids businesses in evaluating which

investments have a financial return in order to make long-term decisions. These are the concepts
that assist a business in determining which factors contribute to its success. Annual reports are
documents that provide a true picture of a company's monetary success at the new fiscal year.
This defines the formal track of transactions which occur within a corporation. These assertions
are as follows:
Use of Financial Statements:
Evaluate the profitability of the company: The much more common use of income statement
is to include details about the company's financial situation at such a given time. This data is seen
by an array of audiences to render intelligent business decisions.
Credit availability: The accounting system provides creditors a description of the company, but
this knowledge can also be used by creditors to even provide new income for business growth or
to restrict liquidity so that reimbursement can begin.
Assists investors in making decisions: The accounting information provide all of the necessary
details for prospective investors to decide how many to expand the business. This also aids in
raising the cost per stock at which investors wish to buy. Earning profit needs an effective
accounting records.
Accounting information help the government: This will allows the management decide on tax
laws and regulations centred on the business's results. Government agencies have the power to
impose taxes on companies based on income as well as properties.
For investment bankers: The following is the most useful information: The income accounts
provide details more about corporation's status to hedge fund managers, who can then change
their quotations appropriately.
Significance of the Financial Statements:
The validity of financial reports lies in their ability to cater to that same diverse participation of
individual parties, like shareholders, the general public, administrators, and many more (Brooks
and et.al., 2019). Some of these points are discussed below:
The Significance of Leadership: The increasing size and sophistication of the factors
influencing business processes necessitates exposure to technology and technologies for coping

with modern maximum profitability. Up-to-date, accurate, and comprehensive information is
required by the top management. Company’s financial position managers recognise a corporate
partner's growth, expectations, and key competitors.
Shareholders' Importance: Manager's function is constrained to managing the activity of
businesses. Board members are unable to engage and forth during the operations of the company.
The impact of that same following practices, on the other hand, must be reported to shareholders
as dividends of financial information during the extraordinary shareholders meeting (Tongpoon-
Patanasorn, 2018).
SECTION 2
Difference types for financial statements:
The complete collection of financial information must be used to get an analysis of financial
performance and the economic situation to the group. The following are the four essential
reports based on accounting statements:
Profit and Loss Statement: Profits, expenditures, and profits from the current period have been
seen. These are frequently regarded as being the most relevant income statement because they
represent the effects of a company's operations. It aids the corporation by revealing the
company's earnings. It covers all operations for which the organisation is financially responsible.
This declaration assists the firm in becoming more successful, resulting in increased return on
investments (Canales, 2016).
Statement of financial position: The balance sheet reflects the liabilities, assets, as well as
equity of the company as of the initial recognition. As a result, the information provided is
current. The template of the statement is set up and as such the overall sum among all
portfolio investment the purchase price of all obligations including quantities (known as the
accounting equation). As it describes whether time is good and that it is spent in an entity,
this would be considered the biggest most significant financial statements.
Cash Flow Statement: This statement indicates the inflows and outflows of cash over the period
ending. This can help with operating income calculations, particularly if the recorded
income and expenses doesn't quite represent the cash flow. Describe the financial
adjustments that occurred mostly during period ending. The review's structure differs, but it

usually includes the transaction and buy back of stock, as well as gains and improvements
arising from the recorded change in value. These would be commonly used in the kit of
accounting information and thus are mentioned carefully throughout financial information.
Statement of equity: It shows shifts in equity throughout recording. The selling or repurchase
of stock, dividends, including adjustments arising from the documented gains and losses can
all be shown in the summary form. These are commonly shown in the kit of consolidated
financial statements and most are mentioned carefully throughout the annual reports
(Valaskova, Kliesti and Kovacova, 2018).
SECTION 3
Company’s key finance performance indicators:
It's more about how the firm's earnings situation is perceived in terms of its financial
statements and financial ratios for determining profitability that aids in improved results and
enhanced margins for companies.
Profit and loss statement: It indicates how much money was made, how much money was
expended, and how much money was made or lost mostly during period ending. These are
frequently regarded as being the most relevant income statement because they represent the
company's overall performance (Creehan, 2018). It assists the organisation in determining its
earnings. It contains the banking transactions that an organisation requires. This declaration aids
the team's growth, resulting in improved return on investments.
Income statement
Particulars 2015 2016
Turnover form the
sales 179587 189711
Costs of goods sold
Material costs 38845 42597
production costs 12845 15231
labour costs 47285 50758
Gross profits 80612 81125
Overheads

Administrative
overhead 20251 13751
Operating costs 34293 22374 L
Interest 7081 1943
Net profit 18987 43057
Gross profit ratios gross profit / sales * 100
44.88744 42.76241
Net profit ratio Net profit / sales * 100
10.57259 22.6961
SECTION 4
Discuss the process which business use for improve its financial performance
In present time, firms use different aspects in order to increase the financial stability and
performance (Greenbaum, Thakor and Boot, 2019). They implement useful marketing strategies
that support to handle business risk and enhance the productivity of company. Thus, from the
above performance evaluation, it has been determined that company is very well performing in a
proper manner which will definitely support to reach the desired targets in future. Even though,
there have been some areas which can be closely seen by the internal manager in order to
improve the lacking like the percentile of current assets over current liabilities can be increased
which support to meet the emerging needs of business. For better performance and execution, the
manager of company has tried to increase the operating activities which results to control the
cost in right manner. In order to meet the business future objective, it is very important for them
to meet the requirement of right strategy. Some of the main components are discussed below:
 Business needs to look closely on expanding the business in right manner for growing
profit as well as increase the performance of operating activities to enhance the entire net
profit for the accounting year. Financial statements including ratio review were prepared
in order to determine the quality and efficacy of the corporate accounting management. It
can be argued that a firm's earnings management plays a crucial role for not only
maintaining the bank's liquidity but also maintaining its long-term development and
growth.

 To maximize capital expenditure, it must preserve its cash position and may re-align and
actually contract terms towards debenture holders. Furthermore, the organization has
ample capital and should be on the lookout for development and expansion prospects.
These can re-evaluate its financial services and disposed of or substitute assets that are
underperforming. Instead of depending on responsive ads, the business should create
effective marketing policies. Therefore, this ratio and short balance of the market can be
used to calculate the company's liquidity. In the presence of an accepted standard, the
conceptual standard of 2:1 for liquidity ratios and 1:1 for fast ratio is used. The ratio of
the company is 2.22:1 and its short ratio is 1.47:1. In contrast, the business appears to be
doing well, with ample current assets to cover current liabilities. Even so, it can also be
overlooked that perhaps the company's net income has decreased by 82 percent,
suggesting that such liquidity situation is not as solid as the figures demonstrate
(Tchamyou, 2019).
 It may use techniques like consider hiring or rented properties instead of repurchasing.
This should make an effort to enhance the efficiency of its activities, i.e. minimise waste.
It will assist in cost reduction and raise profit margins even further. This should evaluate
its self-marketing balance and re-evaluate its marketing campaigns.
CONCLUSION
According to the aforementioned article, financial reports would be those who assist
companies in recognising their financial status. Expenses, revenue, liabilities, and assets are all
included in income accounts. These reports aid ratio analysis since the components used in
profitability ratios are obtained again from financial information. The income statement, that
contains all expenditures and income, is used to assess the company's profitability. The balance
sheet is a document that shows the corporation's liabilities and assets. Such income accounts
assist clients in making lengthy decisions. Ratio assessment is a technique for determining a
company's cash flow, profitability, and competitiveness. It aids throughout the firm's earnings
placement by assisting in the management including its business performance that aids in better
results and therefore enhanced margins.

References
Books and Journal
Beck, T. and Levine, R. eds., 2018. Handbook of finance and development. Edward Elgar
Publishing.
Bendell, J. and Doyle, I., 2017. Healing capitalism: Five years in the life of business, finance and
corporate responsibility. Routledge.
Brooks, C. and et.al., 2019. Why does research in finance have so little impact?. Critical
Perspectives on Accounting, 58, pp.24-52.
Canales, R., 2016. From ideals to institutions: Institutional entrepreneurship and the growth of
Mexican small business finance. Organization Science, 27(6), pp.1548-1573.
Creehan, S., 2018. How digital innovation can increase small business access to finance in
asia. Asia Focus, (March).
Greenbaum, S. I., Thakor, A. V. and Boot, A. W., 2019. Contemporary financial intermediation.
Academic Press.
Tchamyou, V. S., 2019. The role of information sharing in modulating the effect of financial
access on inequality. Journal of African Business. 20(3). pp.317-338.
Tongpoon-Patanasorn, A., 2018. Developing a frequent technical words list for finance: A
hybrid approach. English for Specific Purposes. 51. pp.45-54.
Valaskova, K., Kliestik, T. and Kovacova, M., 2018. Management of financial risks in Slovak
enterprises using regression analysis. Oeconomia Copernicana. 9(1). pp.105-121.