Financial Management: Importance, Financial Statements, Ratios, and Improving Performance

Financial
Management

Table of Contents
INTRODUCTION ..........................................................................................................................3
SECTION 1......................................................................................................................................3
Discuss the importance of financial management.......................................................................3
SECTION 2......................................................................................................................................4
Describe main financial statements and discuss the use of ratios in financial management......4
SECTION 3......................................................................................................................................7
By using the template provided...................................................................................................7
Complete the 'Business Review Template'.............................................................................7
Using Excel prepare an income statement..............................................................................7
Prepare balance sheet with the help of Excel.........................................................................8
By using the information discuss about the profitability, liquidity and efficiency of
company by using ratio analysis technique............................................................................9
SECTION 4....................................................................................................................................11
Discuss the process to improve the financial performance.......................................................11
CONCLUSION .............................................................................................................................11
REFERENCES..............................................................................................................................12
Appendix........................................................................................................................................13

INTRODUCTION
Financial Management refers to the process of handling accounting resources of firm by
analysing, controlling and interpreting the data related to finance and taking decisions which are
important for achieving organisational goals. It urges the management to prepare various
accounts and reports through which the performance and position of firm is evaluated by
external as well as internal parties (Shapiro and Hanouna, 2019). The report is divided into four
sections. The first part of report mentions about the importance of financial management. Second
division relates to the important accounting statements and use of ratios in managing them. Third
portion presents some reports along with examining the performance of company. Fourth
segment deals in the process of improving financial performance.
SECTION 1
Discuss the importance of financial management
It is one of the most important activity carried down by a business. It relates to the
process of calculating and managing the expenses, revenues, profits and movement of cash in an
organisation. This controls and directs the monetary resources of a firm in the direction of
attaining targets of the company. Financial management simply means the practice of controlling
the capital of a firm which helps it in becoming successful. This is generally related to the short
term planning of working requirements by focusing on current assets and liabilities. When all the
finances are managed properly, they ultimately helps in fulfilling long term vision of business in
the form of increased profits, reduced cost etc.
Importance of Financial management
 Maintaining enough supply of funds- It ensures that the firm is having enough supply
of funds through its daily operations can be operated smoothly. It focuses on creating an
optimum debtors and creditors turnover ratio which makes it sure that business has the
opportunity to use cash before making payment to its creditors. It helps in finding various
sources of funds which are less costly and are easily available to the company (Young
and Legister, 2018).
 Ensuring good return of investment- It is very important the funds invested by the
investors brings good results to the business as well as its shareholders. Managers of this
department finds out optimum level of investing opportunities which are profitable and

less risky. It also make sure that the funds are not implied on any sort of wasteful
expenditure as it negatively impacts the profit generation ability of business.
 Efficient utilization of funds- Management of capital simply means applying the
resources judiciously so that each penny of firm brings some profit for it. It helps in
identifying the assets which are bringing losses and those needs to be acquired for
increasing profitability (Keown and et.al., 2020). Financial management make it sure that
funds are not invested in any task which is expected to bring heavy losses to the
company.
SECTION 2
Describe main financial statements and discuss the use of ratios in financial management.
Financial statements refers to a written report which comprises of the summary of all the
accounting activities taken place during a particular accounting period. It provides a brief
information of the end balances of all expenses, incomes, assets and liabilities. There is a well
structured format of these reports which make there use easy and understandable for external as
well as internal parties.
There are mainly three type of financial statements which are discussed below:
 Balance Sheet- It is one of the most important financial statement which shows all the
assets, liabilities and equity held by company in a fiscal year and helps in recognising its
financial performances. It works on the formula of:
Assets = Liabilities + Shareholders Equity
According to the above equation, it is mandatory that the total of one side must be equal to the
balance of other side. This report can be presented in horizontal as well as vertical format as per
the choice of organisation and accounting rules working in the country. Both the sides are further
divided into two parts- current and non-current, on the basis of there term of use and liquidity
position. Long term assets and liabilities are generally for the time period of more than one year
and are useful for running daily operations of firm (Li and et.al., 2020). They cannot be realised
in cash in very short time. On the other side, short termed ones are normally and required to be
realised within fiscal year for the better growth of business. They occurs from daily operations of
firm. For example, cash, accounts receivables, payables etc.