Importance of Financial Management and Processes to Improve Financial Performance

BSc (Hons) 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
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Contents
Introduction 3
Section 1: Definition and discussion of the concept and
importance of financial management 3
Section 2: Description and discussion of the main financial
statements and explain the use of ratios in financial management
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Section 3: Using the template provided 5-9
i. Completing the Information on the ‘Business Review Template
(Ensure that you display your calculations for this detail)
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ii. Using Excel producing an Income Statement for the Sample
Organisation (see Case Study). This should be included within your
appendices 6
iii. Using Excel completing the Balance Sheet 7
iv. Using the Case study information describing the profitability,
liquidity and efficiency of the company based on the results of ratio
analysis 8
Section 4: Using examples from the case study describing and
discussing the processes this business might use to improve their
financial performance 9
Conclusion 10
References 11
Appendix 13
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Introduction
Among the most important components of running a business is financial
management. It ensures that the company 's activities function smoothly and that the
distribution of funding is not disrupted. The study discusses the relevance of financial
governance, financial statement ideas, and the use of ratios in business operations. It has also
gone through key ratios like as profitability, liquidity, and efficiency ratios using the income
statement and balance sheet as an example from the case study. The financial performance of
the firm is also examined during the business performance review (Ashley and et. al., 2018).
Section 1: Definition and discussion of the concept and
importance of financial management
Financial management is a term that relates to the process of leading, controlling,
planning, and coordinating a company's financial activities. It also entails applying
management principles to an organization's financial resources, as well as having a
substantial influence on financial administration (Bano and et. al., 2021).
 Keeping a sufficient stock of assets for the organisation;
 Assuring investors that their investment will provide a high return;
 Optimal and efficient asset use;
 Creating real and secure venture freedoms to put resources into
Importance of Financial Management:
Financial Decision: It supports the company in making key financial decisions. A
decision that has the potential to bring the entire company down. It explains the various risks
and options and assists in determining the size of the investor's capital and the assets bought.
Profitability: If the books of accounts and resources are well-managed, the
organization's production will improve. It will also guarantee that the company's efficiency
and development potential are assessed.
Funds distribution: The right distribution of fiscal resources is based on the company's
earnings. It will assist the firm's fiscal ratios improve, as well as reduce expenses and raise its
monetary state.
Economic Stability: It provides immovability to a firm by addressing a solid monetary
framework and preventing commercial actions that might be harmful to the organisation, as
well as assisting in the maintenance and acquisition of further advantages.
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Formation of the capital structure: The design should be appropriately created in order
to calculate the needed capital. Any business that is dependent on the quantity of cash it has
and how much it has to raise from outside sources (Black, 2019).
Section 2: Description and discussion of the main financial
statements and explain the use of ratios in financial management
Financial statements are information that every publicly traded firm is required to
keep. It depicts the firm's monetary activity. These financial statements indicate the
company's financial health and give financial statistics. These are required to be audited and
are the financial manager's duty. Internal and external sources can be used to audit these. It
ensured that the company's statements were not faked and were genuine. The following are
the statements (Büyüközkan, Göçer and Karabulut, 2019):
Profit and loss statement: This statement details the income, revenues, expenditures,
and accrued or outstanding expenses and earnings for the financial period. It also indicates
the transactions that were made throughout the time period and the expenditures that the
company had to bear in order to yield and make the sales. The organization's net profit for the
time is calculated by subtracting the period's costs and wages. It's the last item on the revenue
statement.
Statement of financial performance: This is the most important financial statement in
the company since it provides clients with a thorough overview of the company's financial
data. This statement shows the total assets as well as the obligations that the company has
agreed to pay in the future. It is also known as a financial record, which is the major concern
of businesses. In simple terms, this statement indicates the financial position of the company
at a certain point in time.
Cash flow statement: The net amount of cash inflow and outflow from the firm over a
period of time is shown in the cash flow statement. It depicts the cash flow from investing,
operating, and financing operations over a period of time. Operational operations indicate the
changes in current assets and liabilities, as well as interest and duty expenditures. The inflows
and outflows from the issuing of shareholder capital, debentures, advances, and dividend
payments are shown in the financing exercises (Chai and Ngai, 2020).
Uses of ratios in Financial management:
Monetary Ratios Analysis is an accounting strategy that assists managers in analysing
financial data that has been reported for the entire fiscal year. It is a limitless tool for the
management of a company's resources, since it allows them to examine the financial position
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