Concepts and Importance of Financial Management for Business Finance BMP3005

APPLIED BUSINESS
FINANCE BMP3005

Table of Contents
INTRODUCTION...........................................................................................................................1
SECTION 1......................................................................................................................................1
SECTION 2......................................................................................................................................2
SECTION 3......................................................................................................................................4
i)...................................................................................................................................................4
ii)..................................................................................................................................................5
iii).................................................................................................................................................5
iv).................................................................................................................................................5
SECTION 4......................................................................................................................................6
CONCLUSION................................................................................................................................7
SECTION 5......................................................................................................................................8
REFERENCES................................................................................................................................8
APPENDIX......................................................................................................................................9

INTRODUCTION
Business Finance means the funds and credit which is acquired and employed in the
business for their day to day use and also for expansion. The report will discuss the concept and
importance of financial management along with the main financial statement components.
Further, the report will also cover the uses of ratios in financial management. Moreover, the
report will also analyse the performance of the company using the calculations done in Business
Review template and excel sheet. Lastly, the report will recommend the process and strategies
with the help of which company can improve their financial performance.
SECTION 1
Concept of financial management
Financial management (FM) means the process of planning, organizing, directing and
controlling of the financial activities for the purpose of three main financial decisions such as
financing, investing and dividend decisions. The financial decision means the decision regarding
the selection of various sources of funds which the company need to acquire at low cost of
acquisition (Königstorfer and Thalmann, 2020). Basically, this include activities of procurement
of funds. Investment decisions, on the other hand means capital budgeting which includes
investment in fixed assets decision. It also includes the decision regarding investment in current
assets. The dividend decision involve the decision regarding whether to distribute the earnings to
shareholder or to retain it for future development of business.
Importance of Financial Management
The various importance of financial management to the company which help them to
achieve their goals and objectives are as follows:
 Financial Planning: It helps in determining the requirement of the finance within the
business with the help of which daily operation of business takes place (Smith, Smith and
Bliss, 2020).
 Acquisition of funds: It is also important for acquiring the funds from the various sources
such as equity, debts, bonds etc. which must be minimum cost.
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 Proper utilization of funds: The company also use the financial management techniques
such as capital budgeting to use and invest the acquired funds in projects to earn higher
returns.
 Improve Profitability: The profitability of the company basically depends upon the
financial strategy (Al-Kabi and Jirjees, 2019). The FM tools and techniques helps the
company to improve the profit with strong financial controls such as budgetary controls,
ratio analysis, cost volume profit analysis.
 Increase the value of firm: It is also crucial for increasing the wealth of the investors and
the value of the business via achieving maximum profit and maintaining the retained
earnings.
SECTION 2
Financial Statement Components
The main financial components which need to be prepare by every company in order to
show its true and fair view are as follows:
 Income Statement: This is a statement which shows the various income and expenses
sources. The income minus expenses state the profit or loss in which if the income is higher
than expenses then it is profit while if income is lower than expenses then it is loss for the
company (Schoenmaker and Schramade, 2018). This income and expenses are includes all
income and expense which are or are not attributable in the ordinary course of business.
 Balance Sheet: The balance sheet is a statement which represent the assets and liabilities of
the company which is accessible to user of financial statements for decision making.
Normally, the financial statement represent the data on the last date of financial year where
assets need to equal liabilities. It is also known as the statement of financial position which
is also analyse by the auditor to give fair opinion. The assets and liabilities are further
divided into the current and non-current assets based on its period. It is best for the
comparison between more than one company.
 Cash Flow Statement: This is a components of financial statement which represent the cash
inflow and outflow sources from the three main activities of business. This three activities
are operating, financing and investing. The cash inflow sources are cash sales, sale of assets,
issuance of shares etc. while the cash outflow sources are cash payments, purchase of assets,
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