Financial Management: Role, Importance, and Evaluation

Running head: FINANCIAL MANAGEMENT
Financial management
Name of the student
Name of the university
Student ID
Author note

1FINANCIAL MANAGEMENT
Table of Contents
Introduction................................................................................................................................2
Role of the financial Management in context of decision making.............................................2
Projecting future cash flows using financial statements............................................................4
Importance of financial statements............................................................................................5
Evaluation of financial statements.............................................................................................6
Interpretation..............................................................................................................................7
Conclusion and recommendation...............................................................................................9
Reference..................................................................................................................................11

2FINANCIAL MANAGEMENT
Introduction
Financial management is considered as an important activity for any firm. It is the
procedure for organizing, planning, monitoring and controlling the financial resources with
the aim of achieving the overall objectives and goals of the firm. It is the ultimate approach
for controlling the organization’s financial activities including funds procurement, fund
utilization, risk assessment, payments and other things associated with money. Proper
financial management of a firm enables it to function efficiently. If the finances are not
managed appropriately it will face different barriers that may have severe impact on its
development and growth (Bekaert & Hodrick, 2017). Tesco PLC is the retail company that is
engaged in retails business and associated activities related to retail. 2 segments of the entity
are ROI (Republic of Ireland) and UK (United Kingdom). The entity was established by John
Edward in the year 1919 and it has it’s headquarter in Welwyn Garden, UK. The entity holds
the leading position among the food retailers of Great Britain with the market share of more
than 15% (Tesco plc, 2019).
Role of the financial Management in context of decision making
Proper usage and distribution of the funds results into improvement in operational
efficiency of business concern that is possible through proper financial management. While
the finance manager properly uses the funds, cost of capital can be reduced which in turn will
enhance the firm’s value. It further helps in taking sound financial decision regarding the
business concern. Financial decision making have impact on entire business as direct
relationship is there among different departmental functions including production personnel
and marketing (Finkler, Smith & Calabrese, 2019). Major decision making areas in the
business through financial management are as follows –

3FINANCIAL MANAGEMENT
 Investment decision – investment decision involves generation of assets for earning
incomes. Assets selection for making investment is the decision in context of
investment. The management must decide how realized funds shall be used for
different investments. Generally, the company’s assets include 2 types of assets –
assets those are convertible into cash quickly and assets those yield earnings
spreading over the year. 1st category of investment decision falls under capital
budgeting and the next type falls under working capital management. Capital
budgeting is distribution of the funds on new assets or re-distribution of the capital
when any old asset is replaced. Worthiness of various investment proposals are
crucial part under the exercise of capital budgeting. As the investment is exposed to
different risks, the management is required to consider this with sufficient prudence
and caution (Zietlow et al., 2018). Decision of capital budgeting is considered as
another crucial aspect of financial management. The management must determine the
standards or norms for judging the benefits. This is called as the hurdle rate,
minimum return rate and the rate of cut-off. On the other hand, management of
working capital is associated with the management of shirt-term assets. The entity
requires sufficient working capital for meeting its short term obligations that is
known as liquidity. If the management is not able to estimate the requirement of
working capital properly the company may face liquidity crisis or may have under
utilisation of revenues (Zietlow et al., 2018).
 Dividend decision – profit of the entity can be dealt in 2 ways – retain the profit for
business purpose or distribute the profits to the shareholders as dividend.
Shareholders will be unsatisfied if they do not receive dividend as per their
expectations. This in turn, will drop the share’s market value and will lead to
financial crisis. Conversely, if the profits are distributed as dividend to maximum