Financial Management and Processes for Business Performance Improvement

This report covers the concept and importance of financial management, financial statements, and the use of ratios in financial management. It also includes a business template stating the financial statements of the firm's financial position. The report provides insights on how to improve financial performance through examples from a case study.

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
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
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financial management
p
Section 3: Using the template provided p-p
i. Completing the Information on the ‘Business Review
Template (Ensure that you display your calculations for this
detail)
p
ii. Using Excel producing an Income Statement for the Sample
Organisation (see Case Study). This should be included within
your appendices p
iii. Using Excel completing the Balance Sheet p
iv. 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 is defined as crucial component including both the
monetary as well as non operations as it assists the firm to find ways for obtaining large
amount of funds in the most profitable manner. The financial management was taught as
the component of accounting used in conventional ways. Due to the impact of
improvisation, it has been expanded to different spheres of the business. The impact of
financial management in the company will be explain in this section. The report will cover
crucial financial records and also the usage of measures in FM. The report will also
highlight about review sample of business as well as will provide completion of appointed
criteria. Moreover, the report will also cover monetary performance gain strategies.
Section 1: Definition and discussion of the concept and
importance of financial management
Financial Management: The management of finance is termed activity which
involves effectively maintaining the balance of funds in order to promote smooth
action of business activities. The aim of financial management department is to take
care of organization and direction of activities of financial activities. The critical
activity of financial management in the organization is to drive effective employment
of resources, procurement of funds from right sources as well as investing in right
assets in order to achieve financial stability and growth. Moreover, the financial
management supports the company to allocate resources in the most productive
manner. The following are the main importance of financial management are:
Supports in business success:
The most important role of financial management is to formulate short term as
well as long term financial targets in order to improve the chance of higher
profitability in future(Shapiro and Hanouna, 2019). In relation to this, the financial
management assists the business to assess the future risks and growth
opportunities present in external environment that directly supports the firm to enter
into most profitable growth projects needed for achieving success. Moreover, this
also allow the organization to allocate financial resources freely by choosing the
lowest risky fund options.
Managing rules and taxes:
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The other important aspect of financial management is to help companies in
effectively managing books of accounts in order to avoid burden related to untimely
payments of duties and taxes. In relation to this, the proper maintenance of financial
accounts will not only enable the firm to follow with legal rules but also helps the
company in performing tax calculations in the most accurate manner. Moreover, the
role of financial management is to help organization in order to make correct
calculations regarding payment of taxes and duties(Bapat, 2020).
Better access to finance:
The other importance of financial management is to allow organization to
effectively identify and analyses the available source of funds in order to provide
necessary findings to carry out day to day business activities. In addition to this, the
financial management also assists the company to choose from the cheapest source
of finance for meeting financial targets and in order to accomplish goals of the
company. Moreover, the identification of appropriate funds aids the organization to
maintain the smooth functioning of operations and other business processes.
Controlling business costs:
The other crucial role of financial management is manage and monitor
business expenditure on growth projects or business processes. This support the
company to reduce extra financial burden on them by making sure to effectively
control business costs to larger extent. In addition to this, the financial management
aids the organization in effectively planning costs related to performing business
activities and also assist the company to minimize the amount of unnecessary
charges such as bank charges(White and et.al., 2021).
Section 2: Description and discussion of the main
financial statements and explain the use of ratios in
financial management
The financial statement is termed as formal representation of the company
which support firm's in evaluation of financial data. The major importance of making
financial statements is to provide details as well as supports the organization to
summaries its financial data in order to draw conclusive statements. The annual
creation of financial documents is just as crucial as making a financial decisions.
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Moreover, the financial report is considered as the structured as well as uniform list
of data designed in accordance with reporting requirements. The important role of
financial statements is to provide a deeper knowledge about the firms financial
position.
The different financial statements is discussed below;
Income statement:
The income statement of the organization also commonly known as Profits
and Loss statement account reflects the firm's operating situation during a specific
time period. This usually includes about the accounting period. The income
statement support the company in evaluating total productivity level of organization
in terms of calculating overall sales earned as well as extra cost for achieving that
income. Moreover, the P&L statement helps the firm to calculate gross margin and
net income. Furthermore, the development of trade accounts assists the organization
to determine sales revenue(Birkenmaie and Fu, 2019).
Balance sheet:
The maintenance of balance sheet accounts is crucial for the company in
order to determine the profitable position of business. The balance sheet of the
company reflects the financial position of the business by providing summary of
assets, capital employed as well as obligations related to certain time periods. In
relation to this, the balance sheet also provides clear picture about the financial
contributions by their shareholders. The term balance sheet is also refereed as the
comprehensive income value statement. It allows the companies stakeholders to
make necessary conclusions after analyzing the firm's current cash position.
Cash flow statement:
The cash flow statement represents the inflow and outflow of cash in business
in the specific time duration. Its the type of financial statements that emphasis solely
on recording regular cash flows in or out of the company. The cash flow statement
supports the company in summarizing operations and financial decisions while at the
same reconcile them in cash flow variations(Plaskova, Prodanova and Reshetov,
2020).
The use of ratio's in financial management:
The financial ratio helps the organization to evaluate and weigh on the
companies values as well as processes. The financial ratios are assessed by
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performing market benchmark related study which further covers evaluating
numerous companies same growth and assessments. The trending assessments
that predicts the firm's proportions are also used to evaluate the comparisons.
Points out Potential advances:
Assuming that the company has lower inventory turnover ratio as compared to
competitors. This is understood that it requires to improve revenue or minimize
investments. This can be accomplished through fostering payment on entrepreneurs
as taking use of excess resources in order to effectively devise growth plans(Ball,
2020).
Planning:
Assuming that the industry's debt is rising the multiple times; it receives notice
about all required to incurr debt and can seek new options of revenue as assets are
not capable to repay the debts related to future. The outcome is that the ratio serves
as the stopping factor related to overspending and debt growth.
Section 3: Description and discussion of the main
financial statements and explain the use of ratios in
financial management
Section 3: Using the template provided:
Completing the Information on the ‘Business Review Template
(Ensure that you display your calculations for this detail)
6

Using Excel producing an Income Statement for the Sample
Organisation (see Case Study)
Statement of financial performance
7

Using Excel completing the Balance Sheet
8

Using the Case study information describing the profitability,
liquidity and efficiency of the company based on the results of ratio
analysis
9

Computation of financial ratios with interpretation:
Profitability ratio: This tool supports the analysts as well as investors to gather
information about efficiency of the company in terms of profit generation and
earnings earning potential of shareholders. There are different types of profitability
ratio such as gross profit ratio. Operating ratio, price earning ratio and return in
investment ratio.
The following is the calculation of profitability ratios for 2016: -
Gross Profit Ratio: -
= (Gross Profit/Sales) *100
= (81125/189711*100)
=42.80%
Net Profit Ratio: -
= (Gross Profit/Total Revenue) *100
= (43057/189711*100)
=22.70%
Interpretations: After analyzing above calculations, it was understood that the firm is
making high profits in the year 2016. This reflects the level of profits and capacity of
earning income. This further supports the investors to gain financial information
about company(Denison and Kim, 2019).
Efficiency ratio: This ratio is also referred as activity ratios. This ratio depicts the
ability of enterprise in terms of using their assets. This shows the effectiveness of
firm in investing the funds as well as utilization of resources.
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Efficiency ratio for 2016: -
Working Capital Ratio: -
= (Current Assets/Current Liabilities)
= (84349/37928)
=2.22 times
Asset Turnover Ratio: -
= (Revenue/Total Assets)
=189711/ (69298+84349)
=1.24 times
Interpretations: After doing above calculations, it has been evaluated that companies
current assets are double of current liability of organisation. This depicts the ability of
company to repay arrears on due date(Brigham and Daves, 2021).
Liquidity ratio:
The ratio presents capability of the firm to pay short term debts in the timely
manner. The liquidity ensures smooth operation of business functions. This basically
shows the level of liquid assets in the company.
Current Ratio: -
= (Current Assets/Current Liabilities)
=84349/37928
=2.22 times
Quick Ratio: -
= (Current Assets-Stock)/Current Liabilities
= (84349-28571)/37928
=1.47 times
Interpretation: After performing above calculations, it was concluded that ideal
current ratio is 2:1. in the year 2016, current ratio is 2.22 times. Thus, firm is
capable to attain the ideal ratio.
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Section 4: Using examples from the case study describing
and discussing the processes this business might use to
improve their financial performance.
Financial statements is considered as the forecaster of future success of
company. It is important for the organizations to make proper budgeting in order to
full-fill financial goals. Financial plan of the operation includes a time frame. This will
able to provide information about the firm's estimated revenue and expenditure over
a period of time. The report is formulated in the basis of corporate financial structure
by huge corporations. For example, the budget of the firm is dependent upon the
expenditures based on doing advertisements, recruiting work force as well as
purchasing raw materials. Based on the income statement, it can be assessed that
the organization is incurring a variety of expenses with the aim of gaining profits. The
organization must lay their focus on minimizing cost order or prevent any
unfavorable conditions. In addition to this, it is compulsory for the organization to
reduce their labor as well as administrative costs by taking use of improved
technologies in order to achieve organizational goals in effective manner. This can
support the firm in increasing the margin of their profits and be prepared better.
Moreover, this will support the firm by saving costs by removing advanced systems
as well as focusing more on achieving targets(Slepov and et.al., 2019).
From analyzing balance sheet, it can be said that the firm have sufficient
assets in order to cover their future commitments. Property turnover needs to be
adjusted as it is not functioning as expected as well as also not providing desirable
source of income. The various ways available for implementing change are turning
off excess reserves, incurring cash in technological improvements, boosting income
as well as using the leased alternatives.
There are number of measures available in order to achieve higher
productivity as well as profits by reducing cost components managing irrelevant
capacities in operational platforms and automating the cost for offering better
services. The most important manner the company can increase the employee
productivity is through reward system. The performance turning review is critical in
order to identify timely weakest areas and correct them in order to hold up revenue
as well as property in industry(Behnampour,IZADINIA and SAFFARI, 2020).
Conclusion
From the above report, It has been analyzed that financial management is
process of properly accomplishing the organizational objectives. It has been
analyzed that it is the process of knowing and managing company budgetary
resources for attaining corporate objectives. The report has covered about
importance of financial management functions as well as also discussed about the
financial statements of the company. In addition to this, the report has also included
the usage of ratio in financial management. Furthermore, The report has also
included the business template stating the financial statements of the firm's financial
position.
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References
Books and Journal
Shapiro, A.C. and Hanouna, P., 2019. Multinational financial management. John
Wiley & Sons.
Bapat, D., 2020. Antecedents to responsible financial management behavior among
young adults: moderating role of financial risk tolerance. International
Journal of Bank Marketing.
White and et.al., 2021. How financial socialization messages relate to financial
management, optimism and stress: Variations by race. Journal of Family and
Economic Issues, 42(2), pp.237-250.
Birkenmaier, J. and Fu, Q.J., 2019. Does consumer financial management behavior
relate to their financial access?. Journal of Consumer Policy, 42(3), pp.333-
348.
Plaskova, N.S., Prodanova, N.A. and Reshetov, K.Y., 2020. Dealing operations as a
means of improving the efficiency of the financial management of a
production company. In Complex Systems: Innovation and Sustainability in
the Digital Age (pp. 61-70). Springer, Cham.
Ball, I., 2020. Reflections on public financial management in the Covid-19
pandemic. Journal of Accounting & Organizational Change.
Denison, D.V. and Kim, S., 2019. Linking practice and classroom: Nonprofit financial
management curricula in MPA and MPP programs. Journal of Public Affairs
Education, 25(4), pp.457-474.
Brigham, E.F. and Daves, P.R., 2021. Intermediate financial management. Cengage
Learning.
Slepov and et.al., 2019. Human capital development as an element of financial
management in national education systems. J. Advanced Res. L. &
Econ., 10, p.1303.
Behnampour, M., IZADINIA, N. and SAFFARI, B., 2020. The Relationship between
Accounting Information Quality and Firm Value with an Emphasis on
controlling operating volatility.
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Appendix:
Income Statement
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