Importance of Financial Management for Business Organizations

BSc (Hons) Business Management with
Foundation
BMP3005
Applied Business Finance
The concept and importance of financial
management and the processes
businesses might use to improve their
financial performance
Submitted by:
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Contents
Introduction 3
Section 1: Definition and discussion of the concept and importance
of financial management. 3
Section 2: Description and discussion of the main financial
statements and explain the use of ratios in financial management
4
Section 3: Using the template provided 6
i. Completing the Information on the ‘Business Review
Template (Ensure that you display your calculations for this
detail) 6
ii. Using Excel producing an Income Statement for the Sample
Organization (see Case Study). This should be included within
your appendices 9
iii. Using Excel completing the Balance Sheet 10
iv. Using the Case study information describing the profitability,
liquidity and efficiency of the company based on the results of
ratio analysis 11
Section 4: Using examples from the case study describing and
discussing the processes this business might use to improve their
financial performance 12
Conclusion 13
References 14
Appendix 15
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Introduction
Business finance refers to the collection of funds by the business owners to
fulfill the business requirements relating to finances which may include commencing
a business, purchase of raw materials, investing in capital assets and completing
other economic activities. It is also utilized for allocation of resources, creation of
economic analysis, reviewing opportunities for financing and other respective
business functions (Chalaki, Mansourfar and Karami, 2018). In this report, an
overview of the concept of financial management along with the importance it holds
in a business environment is explained. The report also contains discussion
regarding the different types of financial statements and preparation of the
statements along with a ratio analysis of the business.
Section 1: Definition and discussion of the concept and
importance of financial management
Financial Management is a business function which deals with the investment
of various financial resources of a business organisation to generate higher profits
and greater Return on investment (ROI) for the business. The financial management
professionals formulate various business financial plans and procedures, organizes
them and controls the respective transactions of the business to allocate the funds in
an optimized manner and generate greater financial benefits.
Importance of financial management:
The financial management in a business organisation is an essential concept
as it assists to formulate the policies, determine the objectives, plan out the
procedures and implement the programs along with the allocation of the budget
which relates yo different financial activities. With an effective financial management,
the business can ensure that the funds are allocated at an effective place and
generate the efficient financial returns that the business aims at (Eppich and Grinda,
2019). The core activity of financial management involves:
1. Making sufficient funds available.
2. To maintain a balance between the incomes and expenses for ensuring
financial stability.
3. Ensure efficient and high ROI.
4. Creation and execution of business growth and expansion programs.
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5. Safeguarding the business against any market uncertainties by ensuring
buffer funds.
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