Financial Management and Analysis for Business Organizations

This report covers the concept and importance of financial management, main financial statements, and the use of ratios in financial management. It also includes a discussion on the processes a business might use to improve their financial performance.

Applied Business
Finance

Table of Contents
INTRODUCTION ..........................................................................................................................3
SECTION 1......................................................................................................................................3
Concept and importance of financial management................................................................3
SECTION 2......................................................................................................................................4
Description of main financial statements and explanation of the use of ratios in financial
management............................................................................................................................4
Section 3: ........................................................................................................................................5
Section 4: ........................................................................................................................................9
Using examples from the case study describing and discussing the processes this business
might use to improve their financial performance.................................................................9
CONCLUSION .............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Financial management is found as the most important prospect related to performing
business activities. It perform several of activities related to the funds such as raising funds,
distribution of funds in the entire organisation and many more. These functions help the business
organisations in smooth functioning. This report include the concept along with the importance
of financial management, description of main financial statements along with the use of ratios in
financial management. In addition to this, it also consider a brief discussion regarding the certain
ratios which include profitability, liquidity and efficiency ratio with the help of example given in
the income statement and balance sheet of case study. The business execution review has been
also included in this report for the purpose of analysing the financial performance of business. It
include the strategies which are required to improve the performance of enterprise.
SECTION 1
Concept and importance of financial management
Financial management refers to the procedure of planning, organising, directing and
controlling the practices related to the finance in an organisation (Terziev, and Klimuk, 2021).
Basically, it means to the utilization of general management principles to financial resources of
the business organisation. It has a vital role in an organisation as it help the management in
taking several decisions which include investment decisions, financial decisions and dividend
decisions.
Importance of financial management:
Financial planning: In order to do the financial planning, the financial management plays an
important role. It plays the role of determining the need of finance related with the business
entity. It is necessary for the business organisation to plan the finances as per the
requirement of business organisation. It has been found that the success of business is
majorly depend on it's financial planning.
Safeguarding/Protecting Funds: the importance of financial management include the saving the
finances to achieve the goals and objectives of organisation. It ensure the smooth
functioning of all operations of business. Lack of finance has been take place in the case of
overspending on any on one project.

Allocation of funds: Allocating the funds in an appropriate manner is the another importance of
financial management. The operational competency of business organisation have been
enhanced when the allocated finances are properly used to the assets. In addition to this,
allocation of funds also result in the reduction of business expenses along with increasing
the capital estimation.
Investment opportunity: If any business organisation perform well in managing their finances
and savings, it may present the opportunities for exploring the investment. Investment
opportunities plays an important role in creating wealth which will help the organisation in
facing and deficit time period.
SECTION 2
Explanation of major financial statements along with the use of ratios in financial management
All the books which are maintained by recording all the business transactions are known as
financial statements. Basically, the place of recording all the monetary transactions are
consider as the financial statement as it also shows the financial data and fiscal health of
company. It is the responsibility of financial manager to properly maintain all the
transactions and ensure the auditing as well. It make sure that the statements published by
the business organisation is authentic. Below mentioned are the main financial statements:
Profit and loss statement: It is the book which include the income, expenses and revenue along
with the accrued or outstanding income or expenses within the financial period. It involve all
the deals which take place within a specific time period along with the costs which have
been done by the business organisation in making sales. Net profit of a financial year can be
calculated by subtracting costs and wages of the business organisation (Tafsir, 2021).
Statement of financial performance: It is consider as the least important financial affirmation
within the business organisation as it provide wide perceptive to the clients which include
informations related to the exchange of money of the company. This statement represent the
assets and liabilities which the organisation is committed to pay in future. The primary
objective of making this statement is to record the monetary transactions.
Cash flow statement: It is defined as the fiscal report which represent the net amount of inflow
and outflow of cash from business in a particular period of time. Basically, it shows the
changes in the cash of a business organisation which include operating, investing and

financing activities. Changes in the current resources and current liabilities have been
represented by the operational activities. Financing exercises include the inflow and outflow
of cash through the issue of capital of shareholders, payment of dividend, debentures and
many more.
Uses of ratio in financial management:
Comparisons: The major use of ratio analysis is to compare the financial performance of
companies within the same industry for the purpose of understanding the position of
organisation in the market. It plays an important role in determining the market gaps along
with its competitive advantages, strengths and weaknesses. This informations are being used
by the management of business organisation in formulating the decisions which leads to the
improvement of position of company in the market (Siziba, and Hall, 2021).
Trend line: several of business organisations use ratios for the purpose of analysing the trend in
financial performance. These companies collect relevant data from the financial statements
over a large number of time period. The analysed trend can be used by the business
organisations in predicting the directions of future financial performance.
Operational efficiency: It has been also analysed that the business organisations are using
financial ratio analysis for the purpose of determining the degree of efficiency in the
management of liabilities an assets. The over and under utilization of financial resources are
being analysed by the use of financial ratios.
Section 3:
Completing the Information on the ‘Business Review Template.
For the year 2016 the net profit, is £43,057. (2015: £18,987,000)
The organisation's essential fiscal and various indicators of show at the time of year were
as follows:

From the consistent functions turn over of the firm has enhanced by 5.6% during the time period
of 1 year. At the start because of the acquiring of the business of the extinguishers on date of 1
may 2015 that supports in whole years effort in the year 2016 (LIEN, 2021).
(The calculation are shown in appendix)
Using Excel producing an Income Statement for the Sample Organisation
This is included within appendix
Using Excel completing the Balance Sheet

Using the Case study information describing the profitability, liquidity and efficiency of the
company:

Profitability Ratio – It is concept of the financial boundaries which are used to evaluate the
incapability of the firm to make revenue overtime in context to various factors of balance sheet
as well as income statements of the financial year from examining the productivity of the firm.
Some of the necessary ratios of profitability are mentioned below:
Interpretation:
The above mentioned ratios displays the profit proportion in context to the income gained
by taking the non operating as well as operational expenditure. Margin of gross profit is the
dimension of the remaining capital firm the income and margin of net profit which advert to the
percentage of the retained income after the revenue from the cost (Hendriarto, 2021)(Kliestik,
and et.al., 2021). Net income as well as gross profit is 22.7 and 42.76% respectively, that shows
the decline in the margin of profits by approximately 20% estimate. The firm requires to reduce
their overhead expenses that is coming in between in gaining more net profits. This is essential
for the potential investors of the firm in order to comparability the financial gain with the other
players in the same industry in conformity to examine their direct point in the sector.
Efficiency Ratio – It evaluates on how properly organisation is utilising their liabilities as well
as assets. This examines how well the organisation manages to gather its amount from the
consumers as well as how much time can it take to attain the repayment of the debt which also
analysis the turnover equity and assets. The essential ratios are stock turnover, asset turnover,
account payable turnover ratio and receivable turnover ratio.

Interpretation: On an ordinary consumer covers about 51 days for the purpose of repaying their
debt. Additionally, the creditors takes 52 days to get their assets. So, the organisation acquire and
give their payments as well as debts in the same time period. It is also the disadvantage as
because on the day of receivable decline then it might be a problem for the firm as there are
several difference in the time of days (HAMMAMI, and ALKHALDI, 2021). The turnover rate
of stock is around 3.8 which refers to the full funds of the stock that flow rate in estimate of 4
times yearly, that is thrice in a year. Turnover ratio of total assets is 1.23, which refers to the
company is functioning well and making enough income.
Liquidity Ratio: This influence the capabilities of the firm to give their responsibility of debts
and focus regarding the financial condition of the firm. Such ratios are basically based on the
current liability, current assets and inventory as well. The crucial ratios are quick as well as
current ratios.

Interpretation: The respective ratio states regarding the liquidating perspective of company. The
abstract ratio is 2:1 and the quick ratio is 1:1 that could be monitored that the current assets to the
liabilities is 2.22 that mean the organisation is solvent.
TASK 4:
Utilising instance from the mentioned case study describing and discussing the process this
commercial organisation can utilise to amend their fiscal action.
Financial Performance is a life long feature of the company as due to the perception at the firm
in to the activity the investors focuses to invest in the firm (FMVA, and Hessel Brouwer CMA,
2021). So, it is essential to take the appropriate fiscal decisions during substantiating the decision
of funding. From the mentioned calculation done it has been analysed that:
 The current assets to the current liabilities has been decreased by the 82 % as compare to
the last year. It states that cash outflow is more and the organisation is losing their
liquidity.
 The net income is enhanced around 126.77 due to the non operating expense like
management cost and moreover, interest has minimised.
 Consumer satisfaction states that the operating is investing more and help in prosperity of
business due to retention of the ratio of workers has also been enhanced.
 Measuring the enhancement of equity of stakeholders, applying in maximum in
marketing of stocks, decline in cost of operations as well as enhancing of income.
Modification which can be finished are mentioned below:
 Utilisation of the resources effectually and expeditiously which can minimise expense
and raise the prices, that this can provide the resultant in investing the income.
 By minimising the stocks and enhancement of the stock turnover, it will assist in the
working capital needs (Calafiore, and Giudici, 2021).
CONCLUSION
It has been concluded that from the above mentioned report that the management of
finance has the crucial act in function of organisation. It assign the capitals, make appropriate
business decisions, displays the profitability, solvency and economic stability on which the

business is depending. Fiscal statements offers a brief explanation of the firm. These are
mandatory for all the working in manage and get them suitably accounted with the help of
several people outwardly and internal. It states the liabilities, assets, equity of shareholder's,
profits, inflow as well as outflow of the cash. Finanical ratios assist in evaluating the solvency
and the efficiency of the company.

REFERENCES
Books and Journals
Calafiore, P. and Giudici, E., 2021. HYBRID VERSUS HYFLEX INSTRUCTION IN AN
INTRODUCTORY FINANCE COURSE. International Journal of Education
Research, 16(1), pp.40-52.
FMVA, M.O. and Hessel Brouwer CMA, C.S.C.A., 2021. BUDGETING REVISITED. Strategic
Finance, 102(11), pp.24-31.
HAMMAMI, S. and ALKHALDI, F., 2021. Enterprise Systems in the Post-Implementation
Phase: An Emergent Organizational Perspective. The Journal of Asian Finance,
Economics and Business, 8(3), pp.619-628.
Hendriarto, P., 2021. Relevance on islamic principle law with application at the field: Review of
islamic banking publication in Indonesia. International Journal of Business, Economics
& Management, 4(1), pp.47-53.
Kliestik, T., and et.al., 2021. Earnings management in V4 countries: The evidence of earnings
smoothing and inflating. Economic Research-Ekonomska Istraživanja, 34(1), pp.1452-
1470.
LIEN, N.T.K., 2021. The Effect of Trade Openness on Foreign Direct Investment in
Vietnam. The Journal of Asian Finance, Economics and Business, 8(3), pp.111-118.
Siziba, S. and Hall, J.H., 2021. The evolution of the application of capital budgeting techniques
in enterprises. Global Finance Journal, 47, p.100504.
Tafsir, M., 2021. Sustainable Finance: A Strategy to Increase Good Corporate Governance and
Company Value in Banking Industry. ATESTASI: Jurnal Ilmiah Akuntansi, 4(2),
pp.154-162.
Terziev, V. and Klimuk, V., 2021. Improving social performance of a resource cooperation
model-Science Education Business Power-based on “Smart Specialization”
principle. Available at SSRN 3851269.

Appendix:
Income Statement