Importance of Financial Management in Applied Business Finance

This report explains the concept and importance of financial management in Applied Business Finance. It describes financial statements, ratios used in financial management, and how to improve financial performance.

Applied Business Finance

Contents
INTRODUCTION...........................................................................................................................................3
SECTION 1....................................................................................................................................................3
Explaining concept and importance of financial management................................................................3
SECTION 2....................................................................................................................................................4
Describe the financial statement and the use of the ratios used in the financial management..............4
SECTION 3....................................................................................................................................................6
(i) Complete the Business Review Template............................................................................................6
(ii) Produce the income statement using Excel........................................................................................6
(iii) Complete the Balance Sheet using Excel...........................................................................................7
SECTION 4....................................................................................................................................................7
Calculate the ratios..................................................................................................................................7
CONCLUSION...............................................................................................................................................9
REFERENCES..............................................................................................................................................10
APPENDIX..................................................................................................................................................11

INTRODUCTION
Financial analysis and information are crucial parts of any company, regardless of its size or
phase of growth. Administration, on the other extreme, must comprehend what commodities the
firm has and how to utilize them as smoothly and profitably as effectively in order to increase the
intended result, as well as the actions that lead them to profit in order to achieve the right
decisions. Business financing refers to the purchase of funds for the purpose of satisfying market
demands (McKenzie and Sansone, 2019). It provides cash for investment, operating financial
rules, and financial diversification. This study focuses on financial management and economic
value. In financial administration, there are also discrepancies in the financial documentation and
the use of percentages. The objectives of this work are to explain what money management is
and why financial statements like the net earnings, balance sheet, and financial condition are
necessary. In particular, the section will contain its use of metrics in financial management as
well as the company's strategy for boosting profits.
SECTION 1
Explaining concept and importance of financial management
Financial management is a term that relates to the process of leading, regulating,
managing, and coordinating a company's financial activities. It also boost management principles
to an organization's financial capabilities, as well as having a substantial influence on financial
organization.
• Preserving a sufficient stock of assets for the organisation;
• Assuring shareholders that their investment will provide a high return;
• Optimal and efficient asset use;
• Creating real and secure enterprise opportunities to invest funds into
Importance of financial management
1. Monetary Judgment: It supports the company in making key financial decisions. A decision
has the potential to bring the entire company collapse. It explains the many hazards and options

and aids in determining the size of the investment's money and the assets bought (Anwar, Shah
and Hasnu, 2016).
2. Profitability: Whereas if accounting records and supplies are well-managed, the firm's
performance will improve. It will also guarantee that the firm's productivity and expansion
potential are assessed.
3. Financial distribution: The right distribution of budgetary allocations is based on the firm’s
earnings. It will assist the company's budget proportions better, as well as reduce expenses and
raise its financial condition.
4. Economic Strength: It provides changeability to the firm by addressing a cash related
foundation and preventing commercial actions that might be harmful to the organisation, as well
as assisting in the maintenance and acquisition of further advantages.
5. Forming the cash position: The architecture must be appropriately developed in order to
calculate the capital necessary. Any business that is dependent on the quantity of cash it has and
how much it has to raise coming from external suppliers.
SECTION 2
Describe the financial statement and the use of the ratios used in the financial management.
Financial statements are documents that every publicly traded firm is required to keep. It
depicts the company's financial activity. Those accounting information indicate the business'
profitability and give financial statistics. Those are all required to be examined and are the
finance owner's duty. Internally and externally information can be used to audit them. It ensured
that the firm's statements were not faked and were genuine (Park and Song, 2020). The following
are the assertions:
1. Profit and loss statement: This statement details the earnings, sales, expenses, and
accumulated or ongoing liabilities and earnings for the accounting periods. It also indicates the
transactions that were made throughout the time frame and the expenditures that the company
had to bear in ways that generate and achieve the sales. The firm's net income for the time is
calculated by subtracting the quarter's expenses and compensation. It's the last item on the
analyzed by calculating.

2. Statement of financial results: This is the most important financial document in the business
since it provides clients with a thorough grasp of the company's current accounting reporting.
This report shows the total assets as well as the obligations that the company has agreed to repay
the lender. It is also known as a ledger accounts, which is the key problem of businesses. In
simple terms, this statement indicates the financial position of the company at a certain point in
time.
3. Cash flow statement: This financial statement depicts the net input and cash outflows from the
company over time. It depicts the cash flow from acquiring, operating, and financing operations
over a length of time. The variances in present resources and existing liabilities, as well as
income and duty expenditures, are shown in operating processes. The cash inflows from the
issuing of stock holders stock, convertible notes, mortgages, and stock dividends are shown in
the financial activities (Samara and Arenas, 2017).
Use of the financial ratios
Ratios are analytical tools that synthesis a massive volumes of information into a place to
share are used to examine annual documents. They have diverse data valences and depict the
company's business and market activity. The goal of ratios analysis in financial planning is to
examine and assess a company's performances using a ratio across income and productivity,
inventory, or assets, hence determining international trade and financial productivity. It also aids
in the making of financial management choices, which are critical to a company's performance,
and summarizes accounting reports into predominantly focused.
1. Financial ratios assist key managers in making the decisions: In the calculating of extremes
and following definitive judgments of such percentages, economic evaluations, advantages, trend
of returning, acquisitions capability, and recompense of the company are used. The decision-
makers are given a concise overview of what has to be accomplished to obtain rewards (Fyke,
Feldner and May, 2016).
2. Effectiveness of Operations: The ratio is used to assess a bank's profitability, solvency, and
efficiency. It aids management in maintaining cheap costs while maintaining high technical skills
in order to accomplish the company's strategic goals.

3. Comparative study: Proportionate assessment of the organization is used to compare multiple
aspects in financial privacy of data. It evaluates the company's overall condition and establishes a
benchmark against which it can be compared to other firms in the same sector (Crick and Crick,
2020).
SECTION 3
(i) Complete the Business Review Template.
(ii) Produce the income statement using Excel.
Shown in Appendix.

(iii) Complete the Balance Sheet using Excel.
SECTION 4
Calculate the ratios
Calculations:

Liquidity ratios: These ratios are used to assess a firm's capacity to meet its financial
commitments and its margins by calculating various ratios such as current, quick, and etc. The
above-mentioned estimated ratios, such as the current and quick ratios, aid in determining how
successfully a corporation can repay the loans using currency and comparable assets. The
calculated current ratio is 2.22 times, which is higher than conventional quality assurance. There
are criteria for things to change in order to prevent investing too much in present assets. The
optimal margin for a quick ratio is 1, which is smaller than the actual outcome of 11.47 times.
These ratios must be monitored by a certain organisation in order to achieve a decent standing
(Wei, Song and Wang, 2017).
Profitability ratios: The capital adequacy could be used to measure how profitable a company is
while selling a larger number of things or operations. In order to sustain earnings, gross margin is
tied to assessing how much a company can cut its sales price. The final outcome of the present
research is 42.76 percentage, that is more than or equivalent to 40 percent. On this basis, it may
be inferred that now the company has been successful in cutting costs in order to enhance
revenues. Additionally, the firm's operating earnings is 22.70 percentage, which is better than its
competitors of 20%, showing that the team is operating hard to enhance sales volume. The free
cash flow has improved significantly.
Efficiency ratio: The inventory and asset turnover ratio is calculated to receive data about a
company's overall financial health. The result of this is 3.80, which indicates a poorer
effectiveness in replacing the equity assets. It is a sign of the firm's weak results, which must be
remedied by taking critical steps. It is necessary to apply process improvements in the fixed
assets turnover in order to obtain a greater potential to create income.

Improve financial performance
It's critical to establish the influence of computed ratios on the firm's performance so that the
greatest amount of effort can be put into making changes. There is a need to implement a variety
of strategies, including selling unneeded assets, consolidating debts, cutting prices, providing
clients with a variety of payment alternatives, and generating cash through a variety of platforms.
Furthermore, it is critical for a specific business to identify areas where improvement is needed
so that an appropriate change management strategy may be implemented. Because these factors
have a significant role in impacting a corporation's economic success, a specific company's
effectiveness in utilizing resources and renewing inventories is reduced. In this regard, the
company must use a performance review approach to determine which areas are deficient and
need to be addressed (Frishammar and Parida, 2019). This makes it easier to reduce obstacles so
that impediments may be eliminated and a suitable situation can be obtained. Stock turnover
ratios may be altered by implementing measures that assures there is no shortage or oversupply,
allowing for the capacity to achieve price pressure. There must be an accurate assessment of
existing capabilities so that cash may be allocated to address unanticipated scenarios. For this
goal, a specific organisation might employ a variety of fund-raising strategies in order to reduce
the risks and costs.
CONCLUSION
As per the conclusions of the study, Finance administration is the lifeblood of a firm. The
process of supervising or directing a corporation's economic operations is referred to as financial
management. Financial management allows for the assessment of an organization's success. This
strategy includes sufficient capital maintenance, financial reporting, accountancy, and money
transfers, to name a few investor activities. Accountancy records also give a snapshot of a
company's financial situation. A financial report is a summary of a firm’s financial position. A
ledger is a standardized record that keeps track of a firm's monetary transactions. It includes all
financial data relevant to enterprises. After that, accounting data may enable the company in
developing successful suggestions for increasing its financial position. Furthermore, calculating
fiscal reports allows a company's executive squad to render effective judgments, helping the
organization to increase production and consistently achieved efficiency and success. The
balance sheet, operational revenues, and cash flow statement are all finance statements.

Furthermore, percentage evaluation aids a business in assessing its solvency, profitability,
organisation, and usefulness, as well as determining its results of the work.

REFERENCES
Books and Journal
McKenzie, D. and Sansone, D., 2019. Predicting entrepreneurial success is hard: Evidence from
a business plan competition in Nigeria. Journal of Development Economics, 141,
p.102369.
Anwar, J., Shah, S. and Hasnu, S., 2016. Business strategy and organizational performance.
Pakistan Economic and Social Review, 54(1), pp.97-122.
Park, G. and Song, M., 2020. Predicting performances in business processes using deep neural
networks. Decision Support Systems, 129, p.113191.
Samara, G. and Arenas, D., 2017. Practicing fairness in the family business workplace. Business
Horizons, 60(5), pp.647-655.
Crick, J. M. and Crick, D., 2020. Coopetition and COVID-19: Collaborative business-to-business
marketing strategies in a pandemic crisis. Industrial Marketing Management, 88,
pp.206-213.
Wei, Z., Song, X. and Wang, D., 2017. Manufacturing flexibility, business model design, and
firm performance. International Journal of Production Economics, 193, pp.87-97.
Frishammar, J. and Parida, V., 2019. Circular business model transformation: A roadmap for
incumbent firms. California Management Review, 61(2), pp.5-29.
Fyke, J. P., Feldner, S. B. and May, S. K., 2016. Discourses about righting the business←→
society relationship. Business and Society Review, 121(2), pp.217-245.

APPENDIX
Income statement: