Importance of Financial Management and Major Financial Statements in Business Finance

BUSINESS FINANCE

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
SECTION- 1....................................................................................................................................1
Concept and importance of financial management.....................................................................1
SECTION- 2....................................................................................................................................2
Major financial statements...........................................................................................................2
Use of the ratios in financial management..................................................................................3
SECTION- 3....................................................................................................................................4
Completing the information on business review template..........................................................4
Income Statement........................................................................................................................4
Balance Sheet...............................................................................................................................4
Interpretation on the profitability, liquidity and efficiency position of the business...................6
SECTION- 4....................................................................................................................................7
Processes that might be used by the businesses to improve the financial performance..............7
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8
APPENDIX......................................................................................................................................9

INTRODUCTION
Financial management is one of the essential function of business associated with the
management of the funds, its availability in the business for the capital investments, sources of
acquisition and the proper utilization of the financial resources. The current project shall be
highlighting upon the importance of the financial management, the major financial statements
that are applied in the business and the various positions in the form of profitability, liquidity and
the efficiency ratio. Apart from that the report shall be commenting upon the processes that must
be used to improve the financial performance.
SECTION- 1
Concept and importance of financial management
Financial management is one of the crucial function of the company that involves the
management of the life blood of business which are the funds of the entity. The process relates to
the planning, organizing, controlling and the monitoring of the financial resources of the
company such that the operational efficiency can be generated in the entity. Beginning from the
acquisition of the funds from the different sources like debt and equity, designing the efficient
capital structure, proper investment decision and allocation of the funds to the best opportunity
and accordingly maintaining the working capital in the business.
Importance of financial management
 Financial decision-making:- One of the key importance is that efficient levels of
financial management shall be assisting in the financial decision-making of the company
(Titman and Keown, 2018). This shall be helping the business dealing with the available
funds and undertaking the choices that further maximizes the finances in the company.
 Defining the investment opportunities:- There are several investment opportunities from
that the business can choose from like the gold, capital assets, property and the mutual
funds among which it has to select the best option which shall be maximizing the returns
generated by the company (What is the importance of Financial Management? 2020).
 Formation of the capital structure:- One of the significant decisions in the financial
management is regarding the capital structure of the company. This involves assessment
regarding which sources of the funds are to be used by the entity like the equity, debt or
the retained earnings that are already available with the company. It can also be evaluated
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that the different sources of funds have the different benefits and the drawbacks that have
to be balanced so that the risks pertaining to the business can be minimized.
 Financial planning:- The financial planning of the monetary resources of the company is
also the essential task in the business that shall be deciding upon the future financial
performance of the company (Block, Hirt and Danielsen, 2018). At each and every stage
the decision has to be made regarding what is the availability, how much is to be
maintained for the business, how to manage the working capital and the investment and
the capital structure decisions as taken by the management of the business entity.
 Managing the economic growth and stability:- Another major importance as posed by
the financial management are that it shall be boosting the growth and stability of the
business. This is because it is managing the life blood of the company so it has the
capabilities to flourish the profitability and the future growth prospects of the business.
With the efficient allocation of the funds in the growth opportunities available with the
company, it shall boost the operating efficiency and further boost the morale of the
individuals. Apart from that if proper funds are being maintained then shall be leading to
the maintaining the credibility of the business. This further stabilizes the image of the
company.
SECTION- 2
Major financial statements
There are four essential financial statements that are being mandatorily presented by the
company to represent the financial performance and financial health and stability. The statements
are as follows:-
 Balance Sheet:- The balance of the company depicts the statement of financial position
of the business stating the various assets that are owned by the company and the
liabilities that are to be fulfilled by the business. It shall be representing the financial
health and stability of the company and the performance of the entity during the financial
year. It is based on the fundamental equation of Assets= Liabilities + Shareholder's Fund
which is due to the double entry system that is followed by the business where each debit
in the transaction has the equal and opposite credit. This balances the total of assets and
liabilities of the company.
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