Importance of Financial Management for Business Management Students

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
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Contents
Introduction p
Section 1: Definition and discussion of the concept and
importance of financial management p
Section 2: Description and discussion of the main financial
statements and explain the use of ratios in financial management
p
Section 3: Using the template provided p-p
Completing the Information on the ‘Business Review Template (Ensure
that you display your calculations for this detail)
p
Using Excel producing an Income Statement for the Sample Organisation
(see Case Study). This should be included within your appendices
p
Using Excel completing the Balance Sheet p
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Using the Case study information describing the profitability, liquidity and
efficiency of the company based on the results of ratio analysis
p
Section 4: Using examples from the case study describing and
discussing the processes this business might use to improve their
financial performance p
Conclusion p
References
Appendix p
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Introduction
Financial management involves decision making with regards to the financial
resources of the business in order to ensure better operational efficiency. There are four
elements within the concept of financial management that is, planning, controlling, directing
and organizing and the last one is the decision making (Brigham and Daves, 2018).
Accordingly, within this report the discussion will be done with respect to different aspects of
the financial management such as the report will highlight the definition, concept and
importance of financial management. Also, various financial statements that are usually
prepared by modern businesses will be discussed along with stating the use of ratios from the
financial management perspectives. In the next section of this report, financial analysis of the
case organization will be done in terms of its profitability, liquidity and efficiency. At last,
various processes will be discussed with the help of which business financial performance
could be improved.
Section 1: Definition and discussion of the concept and
importance of financial management
Definition of financial management
“According to S.C. Kuchal, financial management is considered to be the most important
function performed within every organization which deals with the acquisition and effective
utilization of funds for the betterment of the business. Furthermore, it involves application of
general management principles over the financial resources of the business.
Concept of financial management
The concept revolves around decision making with regard to three major affairs of the
business and decisions related to it that is, investment decision, financing decision and
dividend decision (Mishra, 2018). A business in need of funds and higher profitability need to
answer the following three questions, and that is what reflects the concept of financial
management.
Investment decision (Where to invest the acquired funds?): This decision involves choosing
the asset within which the business should make investment and accordingly, efficient
allocation of limited funds available with the business is done through taking such decisions.
The decisions are made on the basis of rate of return from investment and cash inflows that
the investment is expected to generate over its life. This is done to ensure higher profitability
of the business through selecting projects with comparatively high potential.
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