Financial Management and Processes for Improving Financial Performance

This report covers the concept and importance of financial management, main financial statements, and the use of ratios in financial management. It also includes a case study and processes for improving financial performance.

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
Submitted by:
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Contents
Introduction p
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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
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
Finance may be defined as the process of arranging as well as managing the fund
for the business within the organization. These fund not only assist the organization
in carrying out the daily business operations but also help them when they required
capital. By procuring all the financial activities, the set objectives of the business can
be achieved in a very effective manner (Prihartonoand Asandimitra, 2018). The
following report is going to cover the concept of financial management and its
importance with in the business. This report also focusses on the main financial
management and the use of ratios in financial management in the decision making of
the company. This report also focusses on the completion of the income statement
with the help of balance sheet. Afterword, this report focusses on the different types
of ratios like productivity, efficiency and liquidity ratios which assist in analyzing the
financial performance of the company. Furthermore, this report covers an analysis
which assist the firm in improving its performance.
Section 1: Definition and discussion of the concept and
importance of financial management
The financial management is being considered as the process of managing all the
financial activities of the business in a very proper manner. In simple language, this
is basically the process of effectively managing the asset and liabilities of the firm.
The finance team of the company is responsible for managing all the financial
activities. It is very important for them to effectively manage these activities because
this not only improves their stability in the market but also increases their revenues.
The main objective behind managing the finance is to reduce the expenses of the
company. If this is done in proper manner then the earning of the firm has been
improved. Financial management plays very vital role within the business, the
importance of the financial management has been discussed below: -
 Provide long term sustainability: -if the funds of the company is effectively
manage by the management then this assist them in enjoying the long term
sustainability in the market(Jia, 2020). By effective financial management not
only the profit of the firm can be monitor but also the cost has been allocated
in a very effective manner. By carrying out all the business activities in proper
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manner with the help of financial management, longevity as well as effective
development has been offers to the business in the competitive market.
 Protecting fund: - financial management comprises of protecting the fund
which assist the management in achieving all the objective of the company in
proper manner. This also assist in finding those areas which requires fund for
the smooth functioning of the business. Overspending on the single project
leads to lack of funds in many cases.
 Financial decision: -the financial management helps the business
organization in taking the effective financial decision. Once the financial
choice is made according to the business requirement then it cannot be
rewind. If the finance is once spent by the business the this will not be repaid
again for any wrong decision made. So the financial management helps in
taking financial decision as any wrong decision impact on the business
operation
Section 2: Description and discussion of the main
financial statements and explain the use of ratios in
financial management
Financial statement is defining as the group of claims where each publicly
traded organization creates document of monetary and financial information of the
firm. It is a challenging task for each and every business to maintain it in proper
working manner. It facilitates the overall brief of the company’s current state and
financial situation. In financial statement different types are also involved which are
described below –
 Balance sheet – The organization’s balance sheet is a second name for this.
It is divided into two sections first one is asset and other one is liabilities. After
that these sections are often developed the conclusion of the annual year for
determining the organizations financial health. Non-current, current and fixed
assets, which comprise intangible assets, investment, inventory and
machinery makes up the resources within side of balance sheet. The current
obligations are coming under the category of liabilities and creditors or bills
payable are the non-current obligations. Liabilities also includes cash of long-
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term goals, borrowings and shareholders It also calculated the risk of credit
that could be arise from its assets in future.
 Income statement – It is a very mandatory element of company and it is
highly used by financial manager for preparing various types of financial
statement. This financial statement shows that profit achieved by organization
is a result of is a result of gaining its goals. This identifies the different types of
operating and non-operating expenditure and revenue. The profit is computed
according to this factors. These are basically prepared only for a year,
however and interim statement may be required by business policies. By
reducing all expenditure from the revenue, it shows the organizations
profitability. These are also added in the financial ratio calculation.
 Balance sheet – The outflow and inflow of cash are done by various
businesses. It can be evaluated by classifying all expenditure investing,
finance and operational categories. The funds are generated for the purpose
of the smooth functioning of the enterprise in long term. The investment,
buying and selling of assets and collections of loans for increasing revenue
are some examples of activities of investment. The dividend received or paid
transaction and the capital which is invested in business are coming the
category of financial activities.
Usage of financial ratios –
Ratio analysis is basically a technique which is used by organization for evaluating
their liquidity, profitability and financial status effectively
 Risk evaluation and timely appropriate measures – An organization is run
in various markets and business segments, many of which are highly risky.
Risk and its different categories are evaluated with help of using ratios and
then remedial actions are taken for overcoming such type of risk. The debt to
coverage and equity ratio shows that how reliant an organization is on
external sources of their capacity and funding to repay them.
 Communication source – It is very difficult for showing financials to
stakeholders since after adding them in comprehending complicated and big
financial numbers. Investors found that it is very difficult to make comparison
between figures at times but ratios support users in comprehending the
status of a business so they are free to make lot of investment in their
operational activities.
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 Solvency – It refers to the ability of organization for paying back its current
debt obligations determining its quick ratio, acid test, its ability and other
factors like organization is fully prepared to pay its debts within a fiscal
quarter. The payment cycle of company is regularly evaluated with help of
using various ratios in terms developing it. Therefore, its credit worthiness
improves.
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:
v. Completing the Information on the ‘Business Review Template
(Ensure that you display your calculations for this detail)
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vi. Using Excel producing an Income Statement for the
SampleOrganisation (see Case Study)
vii. Using Excel completing the Balance Sheet
viii. Using the Case study information describing the profitability,
liquidity andefficiency of the company based on the results of
ratio analysis
Monitory ratio analysis is basically a tool or translation which used by organization
with help of monitory data of the business. It is easily available in the fiscal statement
of the organization and are used to taking decisions regarding associations between
these two variables. The various types of ratios which is used in company for
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deciding the positions of the economy of business in various aspects which are
described below
Profitability ratio – It identifies the overall efficiency of the organization for
increasing their profit at higher rate. It is measured in various ways which includes
gross, operating and net profit.
Interpretation – The organizations net profit margin alludes to the translation which
is conducted with help of monitory information of business. The monitory information
is available in budget summary of the organization which is essential for deciding the
connection between two variables. Different propositions are used in business for
deciding the position of organization in various aspects. These are the calculations
which are effectively connected liquidity proportions, effectiveness and benefits of
the case business.
Liquidity ratio –
Interpretation – From the above calculations it is concluded that it is easier for
organization to pay their short-term debt in time. It also estimated that company is
capturing lot of opportunities to make installments to it lenders and also for getting
the obligations effectively. In this process the time taken by the organization is same
and the resource turnover proportion of organization is 1.23 which reflects the
company that they properly used them in business activities.
Efficiency ratio – The organization of this ratio determines that in which way the
activities of the business are using their resources for sustaining company goals in
long term. It also displays the capacity of organization for collecting cash from
account holders and contribute this funds for various aspects in business.
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Interpretation – From the above calculations it is understood that organization is
capturing lot of opportunity for getting the obligations and also for making
installments to its lenders. The overall turnover proposition of this company is 1.23
which means that organization effectively spending its assets for maintaining support
in their business.
Section 4: Using examples from the case study describing
and discussing the processes this business might use to
improve their financial performance.
As per the measured ratios are utiliesd to acquire the company accounting results.
Capitalist can utilise this informations to create decision and select value based on
profitability, solvency, and usefulness. It remuneration the organisation since it can plan for
the future by assuming the likely position the company will face as a result of financial
involvedness. As a outcome, it is important for the industry to measures the portion and
analyses its financial health. increase prosperity is critical because it determines the
organization's long-term practicability, which would be relaible on its economic.
finishing the business requirements is a compute which can be execute to develop the
organisation fiscal standard. It is promising to complete this through promotion instruments
and discussing management strategies. It emphasize on the ratio appraisal, which aids in
analysing an managing financial position, worth, and fludity.
Conclusion
It is concluded from above report that It will help operations in appropriately
allocating money to areas that are advantages to the company progress and rise. The
financial management idea has made it obvious that the role of it is mostly utilized in making
major conclusion. It will help in projecting business conditions and preparing for any crisis
that may grow in the concern. hence, financial management ratios are produced, which will
assist in determining the financial health of the company and comparative analysis may be
made on this basis. however, strategies for up grading routine are shown.
References
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Prihartono, M.R.D. and Asandimitra, N., 2018. Analysis factors influencing financial
management behaviour. International Journal of Academic Research in Business
and Social Sciences, 8(8), pp.308-326.
Jia, S., 2020. Problems and solutions of financial management transformation under
the establishment of financial shared service center. Open Journal of social
sciences, 8(03), p.251.
Yang, L., 2021. Auditor or adviser? Auditor (in) dependence and its impact on
financial management. Public Administration Review, 81(3), pp.475-487.
Khoiriyah, M., Istikomah, I. and Churrahman, T., 2021. The Role of Madrasah
Committee in Managing Financial Management in Madrasah Aliyah
Negeri. NidhomulHaq: JurnalManajemen Pendidikan Islam, 6(1), pp.179-193.
Susanti, N., Noviantoro, R. and Imran, A., 2021. Analysis of Village Funds Financial
Management Planning in Air Dingin Village in Kaur District. Journal of
Research in Business, Economics, and Education, 3(3), pp.1973-1976.
Said, S., 2021. The Influence of Transparency Accountability and Value For Money
Concepts on Financial Management in the Public Sector. Point of View
Research Accounting and Auditing, 2(3), pp.244-251.
Pratolo, Suryo, and Affan Ghaffar Fadilah. "The Effects of Human Resources and
Information Technology Utilization toward Transparency of Village Financial
Management with Organizational Commitment as a Moderated Variable (Empirical
Study in Bantul Regency)." In International Conference on Sustainable Innovation
Track Accounting and Management Sciences (ICOSIAMS 2021), pp. 276-283.
Atlantis Press, 2021.
Appendix:
Income Statement
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