Importance of Financial Management: Concept, Statements, Ratios, and Case Study Analysis

Importance of
Financial
Management

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
Completing the Information on the ‘Business Review Template................................................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 regarded as one of the most critical areas of corporate operations. It
engages in a variety of fund-related operations, such as raising funds, distributing funds within
the organisation, and so on. These functions aid in the smooth operation of corporate
organisations (Pomering, and Kammerer, 2019). This report covers the idea of financial
management, as well as its relevance, a description of the key financial statements, and the use of
ratios in financial management. Furthermore, it includes a brief discussion of various ratios, such
as profitability, liquidity, and efficiency ratio, using an example from the income statement and
balance sheet of the case study. This report also includes a business performance evaluation for
the aim of analysing the financial performance of the company. It includes the tactics that are
necessary to increase a company's success.
SECTION 1
Concept and importance of financial management
Financial management is described as the process of planning, organising, directing, and
controlling financial activities of a company. Essentially, it refers to the application of general
management ideas to a company's financial resources. It is critical to an organization's success
since it assists management in making vital decisions such as investment, financial, and dividend
decisions.
Importance of financial management:
Financial planning: The function of financial management in the financial planning process is
critical. It is responsible for determining the financial requirements of the corporate entity. It is
vital for a company organisation to arrange its finances in accordance with its requirements
(Brooks, and Schopohl, 2020). It has been shown that a company's financial planning has a
significant impact on its performance.
Safeguarding/Protecting Funds: One of the most important aspects of financial management is
the ability to save money in order to meet the organization's goals and objectives. It ensures the
seamless execution of all corporate processes. Overspending on a single project has resulted in a
lack of financial resources.
Allocation of funds: Another important aspect of financial management is the proper allocation
of cash. When the allotted funds are correctly devoted to the assets, the operational competency

of a corporate organisation is improved. Furthermore, allocating money results in a decrease in
business expenditures as well as an increase in capital estimation.
Investment opportunity: If a corporate organisation does a good job managing its money and
savings, it may create prospects for investment. Investment opportunities play a critical part in
generating money, which will aid the organisation in overcoming a period of deficit.
SECTION 2
Description of main financial statements and explanation of the use of ratios in financial
management
Financial statements are all of the books that are kept for the purpose of recording all of the
business transactions. The financial statement is the site where all monetary transactions are
recorded, as well as the financial statistics and fiscal health of the organisation (Radwan, Drissi,
and Secinaro, 2021). It is the financial manager's obligation to keep track of all transactions and
guarantee that they are properly audited. It verifies the accuracy of the assertions made by the
corporate organisation. The following are the most important financial statements:
Profit and loss statement: This is the book that contains the income, expenses, and revenue for
the financial period, as well as any accrued or outstanding income or costs. It includes all
transactions that take place during a given time frame, as well as the expenditures incurred by the
company in making sales. The net profit of a financial year may be estimated by removing the
business's costs and wages.
Statement of financial performance: It is regarded as the most essential financial affirmation
within a business organisation since it provides clients with a wide perspective of the company's
financial information. This statement shows the assets and liabilities that the company has agreed
to pay in the future. The major goal of this statement is to keep track of monetary transactions.
Cash flow statement: The cash flow statement is a financial statement that shows the net amount
of cash intake and outflow from a firm over a certain period of time. It essentially depicts the
changes in a business's cash, which include operating, investing, and financing operations
(Habib, and Hasan, 2019). The operational operations have represented changes in current
resources and current liabilities. The input and outflow of funds through shareholder capital
issues, dividend payments, debentures, and other financing exercises are only a few examples.
Ratios and their applications in financial management: