Financial Management and Key Financial Statements with Ratios

Applied Business
Finance

Table of Contents
INTRODUCTION...........................................................................................................................3
SECTION 1......................................................................................................................................3
Determine the meaning of financial management and its significance..................................3
SECTION 2......................................................................................................................................4
Explain the key financial statements and how ratios are used in financial management.......4
SECTION 3......................................................................................................................................5
(ii) Income statement using Excel.......................................................................................6
(iii) Completed the Balance sheet using excel.......................................................................6
(iv) Using case study information, calculate the Profitability, Liquidity, and Efficiency ratios
based on the company's analysis results .................................................................................7
SECTION 4......................................................................................................................................9
Describe the business structure that is being used to improve financial performance, using
examples from the case study.................................................................................................9
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10
APPENDIX....................................................................................................................................11

INTRODUCTION
Financial management can be described as the activity of organising and controlling a
company's financial activities in order to assist the organisation earn higher returns. It monitors
the company's performance and the effectiveness of the finance management team using a
variety of accounting statements and procedures (Fang and et. al., 2018). In this report, the
concept and importance of financial management, as well as numerous accounting statements
and ratio analysis is explained. The income statement in the appendix further discusses the
performance of an organisation on the basis of its profitability, liquidity, and efficiency.
SECTION 1
Determine the meaning of financial management and its significance.
Finance is the foundation of any company. It is required to keep the business running
smoothly and efficiently. Financial management refers to the part of an organisation that is
responsible for the planning, arranging, directing, and managing of financial activities. It aids in
addressing the needs of shareholders while also maximising the company's income, profit, and
growth.
Financial Management’s importance:
1. Profitability: It examines the firm's efficiency and growth, which will aid in growing
profitability and providing a long-term strategy for the company.
2. Financial Decisions: It aids in the making of crucial financial decisions inside the firm.
A poor decision can jeopardise the entire company. It informs us of the many dangers and
possibilities, as well as assisting us in determining the percentage of shareholder capital
and borrowed cash.
3. Fund Allocation: The profit can be allocated to the right distribution of monetary
resources and dividends. It improves the functional ratio, lowers the cost of capital, and
raises the firm's economic worth.
4. Capital structure formation: It must be developed in order to estimate the amount of
capital necessary. Every venture is reliant on the amount of capital a company has and
how much it needs to raise from outside sources (Haw and et. al., 2018).

5. Economic Stability: It gives the business a sense of security since it reflects a stable
financial structure. It can help the company gain more revenues by preventing degrading
activities.
SECTION 2
Explain the key financial statements and how ratios are used in financial management.
Financial Statements are the records that the corporation is required to keep. It depicts the
company's economic activity and status. Government officials, accountants, and firms audit these
both internally and externally to ensure the reliability and validity of the tax and for investment
considerations (Huang and et. al., 2018). The following are some of the most important financial
statements:
 Balance Sheet: It shows the assets, liabilities, and shareholder equity of a company
throughout the course of a fiscal year. Both the asset and liability sections should be
equal; if they aren't, there is a problem with the transaction recording. It also displays the
current fiscal year's cash and bank balances.
 Income Statement: It focuses on the company's revenues and expenses to determine the
profit, which is known as net income. It's kept in order to show how much money the
company makes. It is calculated by summing the revenue and subtracting the expenses
incurred throughout the fiscal year to arrive at the fiscal year's net profit or loss. It is split
into two sections. First, it calculates gross profit based on operating income and expenses.
The net profit is derived by subtracting non-operating expenses and adding non-operating
income.
 Cash Flow Statements: It aids in determining the requirement for external funding. It
calculates the cash inflow and outflow for operating, investing, and financing activities.
The changes in current assets and current liabilities, as well as interest and tax payments,
are all part of operating activities. The purchase or sale of fixed assets, as well as any
payment related to the company's merger and acquisition, are all examples of investing
activities. The issuance of equity capital, debentures, loans, and dividend payments are all
examples of financing activities.
Ratios: These are used to assess the state of two or more financial statement parts. It
summarises the financial data seen in the financial statements. It assesses the company's financial