BMP3005 - Analyzing Financial Management for Business Success

This report defines and discusses the concept and importance of financial management, explores the main financial statements (income statement, balance sheet, and cash flow statement), and explains the use of ratios in financial management. It includes an assessment of a company's competitiveness, flexibility, and effectiveness based on provided templates and calculations. The report also analyzes and evaluates methods the company could employ to boost financial success, such as advertising techniques, short-term financing management, income reinvestment, resource selling, and improved utilization of current assets, ultimately aiming for neutral buoyancy and profitability to attract new shareholders. The report is prepared for the Applied Business Finance module BMP3005.

Importance of financial
management

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
Section 1......................................................................................................................................3
Section 2......................................................................................................................................4
Section 3: An assessment of the company's accomplishments....................................................6
Section 4: Analyze and evaluate the methods this company could employ to boost financial
success utilizing instances from the case study...........................................................................7
Conclusion.......................................................................................................................................7
REFERENCES................................................................................................................................8
Appendix..........................................................................................................................................1
(i) Calculation of Profit = ( Sales – Purchases - Overheads ).................................................1
(iii) Shareholder’s equity in 2015 = 63,057...............................................................................1
(iv) Current Assets as % to Current Liabilities = 304 – ( 304 * .83 ) = 51.68%.....................2
(V) Gross Profit is termed as = ( Revenue – Cost of Goods Sold )....................................2
(Vi) Net Profit = Gross Profit – Operating Expenses – Other business expenses – Tax +
Interest on Debt + Other Income = ( 81,125 – 38,068 ) = £43057.............................................2
(Vii) Net Profit for 2015 = ( 1,79,587 – 98,975 – 61,625 ) = £18,987.................................2
Quick Ratio = ( Current Assets – Stock ) / Current Liabilities = 304 – ( 304 * .83 )...............3

INTRODUCTION
The idea and relevance of money planning, as well as the key economic reports and profitability
ratios, would be examined in this study (Alam and Rajjaque, 2016). In addition, the revenue
statements and performances which would be included in the appendices part would be used to
evaluate the example institution's success, competitiveness, stability, and productivity.
MAIN BODY
Section 1
Describe and explain the notion of fiscal administration, as well as its significance- Whenever
viewed as a corporation, an organization's goals include operating in a tough industry, greatly
growing income, generating profitability, and growing whilst serving the demands of investors.
Companies typically place a high priority on getting funding from prospective shareholders and
creditors, which have been ultimately was using to produce money. A company's particular
behaviour is determined by the requirements of the institution. Monetary information, on either side,
aids in the measurement and monitoring of productivity, while proper accounting has a number of
benefits in addition to being a legal requirement. Proper accountancy facilitates the efficiency of
working with 3rd parties while still supplying financial data to tax office and lenders. In addition, this
strategy emphasises the responsibility of a restricted corporation's chairman to its investors. On either
side, it safeguards corporate owners, particularly those who are not involved in day-to-day
operations, because proper accounting offers knowledge to so investors that really are necessary for
managing with investments (Block, Hirt and Danielsen, 1994).
When it comes to information administration, there really are 3 key elements to consider.
Monetary information administration aids in the recognition of elements like earnings, expenses, and
liabilities, as well as the measurement of a company's 'reasonable and accurate' portrayal. Finally, it
is useful in conveying economic facts to those people who require it. On either side, it emphasises
the distinction between inner and exterior fiscal information requirements. Workers, supervisors, and
proprietors are typically involved in organisational requirements. Such inner criteria include workers
who really are concerned about their prospects, administrators are accountable for evaluating,
collecting, and regulating information for judgement, and shareholders who want to understand how
the business is operating. The exterior need, on the other hand, comes from tax officials and
accountants who are legally connected to the corporation. External demands might also originate
from vendors, shareholders, lenders, and the journalists, all of which are important in evaluating the

team's productivity as well as its sustainability. The administration is also taken into account in terms
of exterior requirements, primarily for tracking purposes.
Section 2
Understand the use of metrics in money planning and define and analyze the key fiscal
accounts-
Income statement- The income account, often referred as the financial report, examines an
organization's profit or loss for a definite fiscal period. The income and net income generated by a
business for the year are normally shown on the account. Financial statements are commonly used by
businesses to track their profits. It basically describes the organization's spending, goals, and income
produced over a period of time. By subtracting the depreciation and amortization from the income,
this section of the paper generates and displays net profit. Operating income is generated as a result
of this. By subtracting operational income and expenses income, operating income is obtained. By
analysing figures, names, and timelines off net earnings for the associated firm, a financial statement
is created to assist lenders and shareholders (Chandra, 2011).
Figure 1: Analysis layout of income statement
Balance sheet- The balancing ledger is a financial report that enables the firm to determine its
assets and debts at a given point in time. Accounting reports can be viewed in two ways by default.
To begin, the group's resources must match its debts by two. Furthermore, the resources used must be
in proportion with the investment used by the company. Reports of economic standing are another
name for accounting records. It's among the most common ways to focus on the equity stake. A
balance sheet is used to assess an organization's capacity to pay its obligations. Flexibility is the

broad term that describes the procedure, and it is evaluated in 2 directions. To begin with, the time it
takes to transform company shares into cash. Furthermore, a comparing of the organization's
inventory with its outstanding overdue must be made. As long as the transaction is outstanding,
stocks are considered flexible (Dickson, 2017).
Cash flow statement- The working capital summary is a fiscal report that shows the firm's revenue
cash inflows as a result of its continuing activities and investing streams. The cash flow statistics also
cover the expenditures for a specific time span. Money is widely regarded as among the most
important measures of a company's success. This comment demonstrates how much money was
collected and how much money was paid out. Many businesses regard this declaration to be the 3rd
biggest declaration. Cash flow is a metric that entrepreneurs, shareholders, and others use to assess a
corporation is able to produce future earnings. Furthermore, the declaration details the firm's capacity
to satisfy its fiscal obligations and dividend payments.
Ratios- Proportions are used to quantify the connection among 2 or even more finance report
elements. Proportions in economic information can be expressed as a rate or a %, based on the
organization's desire. Ratios are being used to take into account various firms in particular. With the
exception of having certain limits, applicability ratios must be utilised as a preliminary step for
further investigating the organization's brand for clarification purposes. The functionality of a ratio is
used to classify it. Following are a handful of the most critical ratios-
Profitability ratio- Profitability ratios show whether a firm is productive, and they can also show
whether it is somewhat lucrative than some other ventures, or if it is spending the very same portion
of revenues over a given time period. The gross profit margin and net profit margin are used to make
the primary computations. The proportion could also be used to estimate returns on invested assets
and ownership (Ivanovich, 2020).
Liquidity ratios- The liquidity factor is a percentage of a firm's viability and capacity to afford its
debts. It considers resources and money that can be swiftly converted to cash or used for a brief
commitment. The present obligations and present capabilities of the company are used to calculate
liquidity position.
Efficiency ratios- Efficiency ratios are commonly employed to assess the impact on corporate
processes by focusing on resource utilization. The percentages are commonly used to assess how
long it takes to recover money from clients. It could also compute assets and equity rotation, as well
as the time period that really should be employed to settle the organization's obligations.
Other ratios- Various proportions are usually made up of-

 Activity ratio that measures how well a company utilizes its resources.
 Investors Ratio that focuses on the firm from the perspective of the stakeholders.
 Capital Gearing Ratios that evaluate the funds obtained from the equity assets and long-term
creditors (Patil and Bhakkad, 2014).
Section 3: An assessment of the company's accomplishments
The firm's assessment template, which itself is included in the appendices, reveals that-
Competitiveness in the workplace- It can be said that at the end of the fiscal year, there was a
127 percent growth from 18,987 in 2015 to 43,057 in 2016. This definitely indicates that the
company is growing and operating effectively under leadership. The firm's gross profit margin is
42.8 percent, and its net profit margin is 22.7 percent, as per accounting ratios. Although percentages
are typically utilised for analyses, it is obvious that the company generates €42.8 in income for each
and every €1 of selling. We can't draw any firm conclusions regarding the firm's position in the
industry because data from other businesses isn't accessible. Nevertheless, it is possible to infer that
the corporation performed significantly better in 2016 than in the prior fiscal period.
Flexibility in industry- The quick ratio, acid test ratio, and current ratio were used to determine
the organization's viability. Depending on the findings, it is reasonable to infer that the corporation
would be able to meet its short-term commitments. When we compare the firm's current resources to
its current obligations, we could see that the business is stable, with an asset to debt ratio of 2.22:1.
Furthermore, with an asset-to-liability proportion of 1.47:1, it is obvious that the firm's solvency is
still high after excluding inventory. The figures also show that the company is successfully using its
capital and not letting it sit dormant (Sheedy, Griffin and Barbour, 2017).
Effectiveness in the workplace- On every €1 invested, the company has made €2.26. The data
demonstrates that the group is making good use of its money, with a 226 percent yield on capital.
The company, on the other hand, needs 105 days to replenish the shares. We can't determine if the
information is a favourable or unfavourable discovery because we can't contrast it to other companies
in the similar sector. The organisation has a 72:54 proactive proportion of paying off debts to
consumer collections. This has an impact on the financial statement since the business would have
the opportunity to gather prior paying the creditors, which would be a long-term benefit.

Section 4: Analyze and evaluate the methods this company could employ to boost financial success
utilizing instances from the case study
The company is growing and is well-managed; however there are some aspects which need to
be improved.
Advertising Techniques- The creation of a business model typically takes into account a
number of factors, along with the institution's aims and ambitions, marketing efforts, new and
growing markets, organisational strengths and weaknesses, and funding sources. To begin with,
consumer engagement is among the earliest and most straightforward techniques for businesses to
adopt. Furthermore, both new and experienced buyers prefer to get things from sales professionals.
Nevertheless, this might not be appropriate for all businesses. Finally, among the most significant
venues for promotional purposes is social networking. Social networking tools used by finance and
banking companies to market their services. Lastly, the majority of financial institutions have far
more information than what is needed. To reduce the strain on their systems, businesses usually store
their information with third-party organisations.
Other approaches- Short-term financing can be handled by tightening impact of credit as needed
by the business, reducing amount of stock to get more access to cash which could be utilised for
many other reasons, and keeping power over cash flow by deferring repayments wherever feasible.
Income reinvestment and resource selling are two intelligent methods which the company could
employ. Current assets must be better utilised, methods for purchasing less expensive stuff must be
implemented, and a waste disposal programme must be implemented. The information also shows
how the company should be reformed to become more neutrally buoyant and profitable in order to
attract new shareholders (Zietlow, Hankin, Seidner and O'Brien, 2018).
Conclusion
The relevance of finance organization is needed in the paper. Furthermore, it has been
architecturally debated based on the information presented via accounting information and vertical
analysis that also generates a financial report focus on accounting information and evaluates the cash
flow budget, effectiveness, and revenue growth based on the estimations discovered in the connected
annexure.

REFERENCES
Books and journals
Alam, N. and Rajjaque, M.S., 2016. Shariah-compliant equities: Empirical evaluation of performance
in the European market during credit crunch. In
Islamic Finance (pp. 122-140). Palgrave
Macmillan, Cham.
Block, S.B., Hirt, G.A. and Danielsen, B.R., 1994.
Foundations of financial management. New York:
Irwin.
Chandra, P., 2011.
Financial management. Tata McGraw-Hill Education.
Dickson, P.G.M., 2017.
The financial revolution in England: a study in the development of public
credit.1688-1756. Routledge.
Ivanovich, K.K., 2020. About some questions of classification of institutional conditions determining
the structure of doing business in Uzbekistan.
South Asian Journal of Marketing &
Management Research. 10(5). pp.17-28.
Patil, D.B. and Bhakkad, D.D. eds., 2014.
Redefining management practices and marketing in
modern age. Athrav Publications.
Sheedy, E.A., Griffin, B. and Barbour, J.P., 2017. A framework and measure for examining risk
climate in financial institutions.
Journal of Business and Psychology. 32(1). pp.101-116.
Zietlow, J., Hankin, J.A., Seidner, A. and O'Brien, T., 2018.
Financial management for nonprofit
organizations: policies and practices. John Wiley & Sons.

Appendix
The Net Profit for the year 2016 , is £? (2015: £18,987,000).
The Company’s key financial and other performance indicators during the year were as
follows:
2016 2015 Change
Profit for the financial year ? 18,987 + ?
Shareholder’s equity ? 63,057 +32.9
Customer satisfaction 4.5 4.1 +10
Average number of employees 649 618 +5
Turnover from continuing operations increased by 5.6% during the year, primarily
due to the acquisition of the Extinguishers business on 1 May 2015, which made a
full years contribution in 2016.
(i) Calculation of Profit = ( Sales – Purchases - Overheads )
= ( 1,89,711 – 1,08,586 – 38,068 ) = £43,057.
(ii) Percentage Change in Profit as compared to 2016 = ( 43,057 – 18,987 )
* 100 / 18987 = +126.77%
Shareholders’ equity increased by 32.9% by £?.
(iii) Shareholder’s equity in 2015 = 63,057.
Percentage of increase in shareholders equity = 32.9%.

Therefore, shareholders equity in 2016 = ‘( 63,057 * .329 + 63057 ) = £83803.
The company’s “current ratio” (Current Assets divided by Current Liabilities.) is ?
(iv) Current Assets as % to Current Liabilities = 304 – ( 304 * .83 ) =
51.68%.
Gross Profit = £?
(V)Gross Profit is termed as = ( Revenue – Cost of Goods Sold )
= ( 1,89,711 – 1,08,586 ) = £81,125.
Net Profit = £?
(Vi) Net Profit = Gross Profit – Operating Expenses – Other business
expenses – Tax + Interest on Debt + Other Income = ( 81,125 –
38,068 ) = £43057.
Net Profit increased in 2016 by ? % during the year.
(Vii) Net Profit for 2015 = ( 1,79,587 – 98,975 – 61,625 ) =
£18,987
Net Profit for 2016 = £43,057
Therefore, increase in Net Profit percentage in 2016 as compared to 2015 =
( 43,057 – 18987 ) / 18987 * 100 = 126.77
The company’s “quick ratio” (Current Assets (excluding stock) divided by Current
Liabilities) is ?

Quick Ratio = ( Current Assets – Stock ) / Current Liabilities = 304 – ( 304
* .83 )
= 51.68%.
Notes to the financial statements at 31 December 2016
3. Turnover
201 201
£00 £00
Turnover from continuing operations 189,71 179,58
4. Cost of Sales
201 201
£00 £00
Labour Cost
Cost of Sales 108,58 98,975
5. Overheads
201 201
£00 £00
Total Overheads 61,625