Introduction to Financial Management: Concepts of Budget, Finance Function, and Financial Statements

This report covers the concepts of budget and its utilisation in organisational planning, control as well as decision making. The relationship of finance department with other functional division of the respective organisation has also been provided. Furthermore, how financial statements are used by different stakeholders of the company is explained in the report.

Introduction to
Financial
Management

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY ..................................................................................................................................1
Concepts of budget and its uses in organisational planning, control and decision making........1
Discuss finances function and its relationship with other functions...........................................2
Discuss how financial statements are used by different stakeholders.........................................3
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Financial management is defined as strategic planning, directing, organising and
controlling financial undertakings in an organisation. This involves implementing management
principles to the financial possession of a company as well as playing essential role in fiscal
management. It is very essential for organisations to manage their finances in order to handle the
finances of the company in a way that allow them to become successful and compliant with
regulation (Al Breiki and Nobanee, 2019). For this report the company which is being considered
is Tesco which is a British multinational retail organisation that was founded in the year 1919 by
Jack Cohen. This report covers the concepts of budget and its utilisation in organisational
planning, control as well as decision making. The relationship of finance department with other
functional division of the respective organisation has also been provided. Furthermore, how
financial statements are used by different stakeholders of the company is explained in the report.
MAIN BODY
Concepts of budget and its uses in organisational planning, control and decision making
A budget is defined as quantitative plan that is associated with monetary methods for
fourth coming financial year. Budget planning is described as process of developing detailed as
well as short term plan for different departments, activities and function of a company. Budget is
also refereed to a management tool which is utilised by managers to control and plan the usage
of scarce resources. The main concepts of budget is to prognosticate the future sales and
production cost of an organisation so that desired amount of income could be accomplished
along with reducing the chances of business loss (Alkaabi and Nobanee, 2019). The main
purpose of creating budget is to anticipate future financial circumstances of company along with
monitoring future requirements for funds.
Budget uses in planning
The main importance of budget in planning is to maintain the financial health of an
organisation and achieving the desired aims. The business budget allows an organisation to
create a strategic plan and also in attracting investors to put their money in company for
accomplishing objectives. The budget also assist in preparing sales, income and payroll taxes.
This also assist in delegating amount to different departments of the company according to their
requirements.
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Budget uses in Control
Budget control assist organisation in compelling management to think about the future
and to establish targets for every department and operations in order to anticipate purpose of
company. It also help in promoting communication and coordination in the firm along with
defining areas of accountability. Budget control help in keeping a supervision of performance of
an organisation over the period of time. In budget. control of finances is important as it helps in
ensuring that work is in progress according to the planning of a firm. There are various types of
budget control which includes financial budget, operating budget and non-monetary budget.
Budget uses in decision making
Budget helps a company in making good decision that could enhance profitability and
provide growth in the market. It helps in making wise decision and providing balanced overview
over the requirement of company along with stopping them from overspending (Cangiano, Gelb
and Goodwin-Groen, 2019). It also helps in adjusting strategies and taking smarter decision
regarding where to spend the money effectively so that it could boost the income levels of
company.
Discuss finances function and its relationship with other functions
Finances functions is defined as a part of financial management that is related with
planning and controlling of financial resources of an organisation. In terms of Tesco, finances
function include usages and acquiring of funds that are important for efficient operations. In the
respective organisation finance function is divided into three categories which include long-term
finance, medium-term finances and short-term finances. The main objectives of finance function
for the respective organisation is to take investment decision, finances decision, dividend
decision and liquidity decisions. The Finance department has relationship with other three
department of the Tesco company which helps them in making proper utilisation of resources in
the provided budget. The relationship between financial management with Marketing,
Production and Human Resource departments in context to Tesco could be defined as follows:
Finance and Marketing
Finance and Marketing department are two main pillars of the respective organisation
which help it in accomplishing growth as well as profitability (Országhová, Hornyák Gregáňová
and Papcunová, 2018). The marketing department of the organisation is mainly concerned with
trading of commodities or services in the market for customers. This department is responsible
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for framing selling, marketing, advertising and other policies in order to accomplish sales target.
It is also accountable for enhancing market share in order to develop brand name among
customers. The finance department of the respective company is to provide required budget to
the marketing department for meeting needs of all the activities.
Finance and Production
The Production and Finance department of Tesco organisation are interrelated. The
production department of the respective organisation is related with skilled or unskilled
employees, production cycle, collection of final commodities, capacity usage and many more for
which money is required that is provided by finance department (Yan, 2019). The production
department of the company is also required to take several decision such as updated machinery,
execution of safety measure and other activities for which financial implications are required that
are meet by financial department.
Finance and Human Resources
The Human Resource department of the selected organisation is responsible for
appointing, selecting, training and supervising employees. This department is also accountable
for providing safe and secure environment to the employees so that a positive working place
could be created. This department of the organisation works with finance department in order to
evaluate welfare of employees, supervising their pay scale, incentive scheme and many more
activities.
Discuss how financial statements are used by different stakeholders
Financial statements are defined as written records that represents financial performance
and business activities of an organisation. Financial statements are audited by several
shareholder of company such as managers, owners, employees, suppliers, government and others
in order to ensure financing, tax as well as other investing aims (Al Breiki and Nobanee, 2019).
In terms of Tesco, the main users of financial statements involve employees, customers,
suppliers, government, general public, management and owners. The usage of financial
statements by different shareholders is explained below:
Users of Financial statements
Owners Under this category general investors or
shareholders are considered. They use financial
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investments in order to determine how much
benefit in monetary aspect company has gained
along with evaluating its worth. They are
concerned with challenges they could face
through investing in the organisation.
Employees The employees use financial statements in
order to determine their job security on the
basis of company's performance. For instance,
If Tesco is making good profit than they could
expect their promotion, pay rise, incentives and
other rewards on monetary basis. On the other
hand if the organisation is performing badly in
the market than they might face risk of loosing
their job.
Customers Sometimes many consumers depend on the
supplies of the company therefore, they want to
its financial statements (Dandago, 2018). They
want to determine how company is performing
in the market in order to determine whether it
could supply them commodities in the future.
Suppliers Suppliers generally give credit terms for
products the organisation buys, therefore they
want to analyse whether they would get paid
after the delivery of raw materials. For
instance, if the respective organisation is
performing badly in the market then suppliers
could provide them raw materials on cash
purchase.
Lenders Under this category banks and other entities
are considered who provide loans to the
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organisation. Therefore, they are required to
know if the selected organisation is able to pay
back the loan in the provided time period. They
also want to determine whether they could
provide them loan in future on the basis of
performance and position of the respected
organisation.
Government Government needs to know the financial
statements of the respective organisation in
order to establish policies according to the
economy and how firm is influencing it (Yan,
2019). The another reason include taxes which
the organisation has to pay which is based on
the income statements of the company.
General Public The society is required to financial statements
in order to know how company is impacting
various factors such as economy, environment,
community and their well-being. The Tesco
also support the society by giving the
Corporate Social Responsibility.
Management Management department of the respective
organisation is require to concern the financial
statements in order to analyse performance of
the company along with its position in the
market (Bapat, 2019). They utilise financial
statements to make effective decisions that
could bring profitability for the company.
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CONCLUSION
From the above report it could be concluded that developing an effective budget is very
important for companies in order to maintain financial activities and gaining success in the
market. It has also been analysed that budget of an organisation plays a very essential role in
planning, controlling and decision making process of an organisation. From the above discussion
it is evaluated that finance department have a direct relationship with other departments as it
helps them in providing required budget that helps them in managing activities and proper
utilisation of resources. It is examined that different shareholders use financial statements for
their own benefit and to determine position of the company in the market.
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REFERENCES
Books and Journals
Al Breiki, M. and Nobanee, H., 2019. The role of financial management in promoting
sustainable business practices and development. Available at SSRN 3472404.
Alkaabi, H. and Nobanee, H., 2019. A study on financial management in promoting sustainable
business practices & development. Available at SSRN 3472415.
Bapat, D.M., 2019. Segmenting young adults based on financial management behavior in
India. International Journal of Bank Marketing.
Cangiano, M., Gelb, A. and Goodwin-Groen, R., 2019. Public financial management and the
digitalization of payments. Center for Global Development.
Dandago, K.I., 2018. Transparency and Accountability in Public Financial Management: A
Stewardship Account at Kano State Ministry of Finance, Nigeria. International Journal
of Financial Research, 9(2), pp.76-89.
Országhová, D., Hornyák Gregáňová, R. and Papcunová, V., 2018. Trends in Financial
Management of Municipalities in Conditions of the Slovak Republic.
Yan, C., 2019. Construction of Enterprise Financial Management System Based on
Comprehensive Budget Management. Journal of Finance Research, 3(1), pp.16-20.
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