Financial Management and Processes for Improving Financial Performance

This report covers the concept and importance of financial management, financial statements, and the use of ratios in financial management. It also includes a case study analysis of a company's financial performance and processes for improving it. Course code BMP3005, subject Business Management with Foundation.

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
financial management
p
1

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
2

Introduction
Financial Management is one of the most essential element of the commercial
business. It ensures that the practices in the company functions more smoothly without any
kind of agitation in the capital allocation. The following report will cover about the fiscal
management, few of the thoughts of fiscal statements as well as utilization of various ratios in
the functioning of a firm. It will also include about the particular ratios for like liquidity,
profitability and efficiency ratios by using some example from the given case study with the
assistance of income statement as well as balance sheet. The performance of business review
is also attained to evaluate the performance of the company financially. In addition to it, it
will cover about the strategies, the organization requires to refer in order to improve the
performance of the company.
Section 1: Definition and discussion of the concept and
importance of financial management
Financial management is the study that means to the monitoring, guiding,
analyzing as well as organizing of the fiscal operations of the company. This similarly
incorporates application of the principle of management in the resources of fiscal of the
organization at the time when it have the crucial effect in the fiscal working.
 Managing adequate stocks of assets for the firm.
 Assuring investors of the organization in order to get more revenue from their
business
 Effectual and ideal utilisation of the assets.
 Making of the authentic as well as secure business freedoms in order to put more
resourceful into it.
Importance of Financial Management:
 Financial Decision – This helps in bringing the critical money focused option of the
company. In which a decision that can easily bring down the entire organisation. This
states about the several risks, options as well as assist in selecting the extent of the
capital of investors and the acquired assets. (Sinervo, and Haapala, 2019)
 Profitability: If the organization's financial books and the resources are appropriately
managed, it can rise the performance and productivity of the company. It will also
make sure in determining the effectiveness and growth opportunities of the firm.
3

 Funds allocation: The appropriate allocation of the resources that are distributed in
accordance to the profits of the organisation. It will better the financial ratios and it
will assist in minimising the costs and enhances the financial condition of the
company.
 Economic Stability – It offers the firm an immovability because it attains the
monetary model and it can also maintain from the practices of the organisation that
can be sometimes corrupting for the company and assist in managing as well as
acquiring more advantages.
 Capital Structure – For the process of the needed capital, the idea need to be made
appropriately. All the organisations that depends on the evaluation of investment a
firm has and the amount it need to be increased from the external sources
Section 2: Description and discussion of the main
financial statements and explain the use of ratios in
financial management
Fiscal Statements refers to such records that are essential for all the listed organizations to
keep and manage. This represents the monetary practices of the company. These statements
offers the fiscal data and displays the financial situation of the firm. It is essential in order to
get them appropriately audited and it is also the obligation of the fiscal manager. It can be
audited by the external as well as internal sources. As it assures the financial statement that
are made by the organisation is not at all forged and are genuine. The below are the fiscal
statements:
 Profit and loss statement: It states about the expenditures, revenues, profits and the
outstanding or accrued income as well as expenditures that have came about the fiscal
year. This similarly states about the deals which are done in the period as well as
some of the expenses which have been encountered by the commercial firm in order
to yield and gain more sales revenue (Saptono, 2018). By reducing the expenses as
well as salary of the organisation's financial year display its net income for that
specific time. This the last element in this type of financial statements.
 Statement of financial performance: It is one of the most essential fiscal
distribution in the business firm as it offers the major knowledge to the consumers of
the monetary information about the company. This statement states about the entire
4

liabilities as well as assets that the firm is obliged to pay in the near future. Moreover
to it, this is also detected that monetary record that is basicaly the initial concern of
the company. In the simple words, this statements shows in which the firm is
positioned in accordance to the finance at the certain time period.
 Cash flow statement: This financial report represents the net gaining of the outflow
and inflow of the cash from the organization in the specific time period. It shows the
alteration in the finances from the capital investing, financing as well as operating
practices at the time of financial year. In addition to itm operational practices displays
the deviant made in the existing resources, duty expenditures, interests and current
liabilities as well. This fiscal statement displays the outflow and inflow from the
problem of capital of shareholder, advances, dividend's payment and debentures as
well.
Uses of ratios in Financial management:
Monetary analysis of ratios is the way of bookkeeping that assist the people in the
company to evaluate the fiscal information which have been different over around the entire
year of finance (Lulaj, 2021). This is the method that has no restriction for the management
of the organisation's resources as it assist hem in surveying the monetary presentation of the
firm. It supports the higher level management of the company with taking several short as
well as long term options of the organisation and describing the ideas of such decisions in
comparison of the earlier years. The main principle employments of ratios are mentioned
below briefly:
 Fiscal ratios is crucial as it supports the management in several essential decision
making: The cash advantages, reports, pattern of income, ability of acquisition and
revenue of the company are used in the process of extents and later certain decisions
of these ratios. The management is appropriately understood regarding the working of
the company in future in order to gain more perks.
 Operational Efficiency: The ratios assist in deciding the solvency, liquidity and
productivity of the company. It supports the management with maintaining low
expenditures at the major skill in order to address the organisational goals and
objectives of the firm (Khan, et.al., 2019).
5

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)
The Net income for the annual year 2016 is around £43,057. (2015: £18,987,000).
The organization's vital fiscal and other indicators of performance at the year are
mentioned below:
2016
£’000
2015
£’000 Change %
Turnover (continuing operations) 189711 179587 +5.6%
Profit for the financial year 43057 18,987 +126.77%
Shareholder’s equity 83802.75 63,057 +32.9%
Current assets as % of current liabilities 222 % 304.00% -82%
Customer satisfaction 4.5 4.1 +10%
Average number of employees 649 618 +5%
Rate of turnover from the consistent functions enhanced by around 5.6 percentage at
the time of fiscal year, initially because of the taking over of the other venture on the 1st/ 05 /
2015 which make the contribution of the entire year in the year 2016.
Gross Income = £81,125
Net Income = £43057
Net Income enhanced in the year 2016 by around 126.77%.
Equity of shareholder has enhanced around 32.9% by £20,745.75.
The company’s “quick ratio” (Current Assets (excluding stock) divided by Current
Liabilities) is 1.47:1
The “current ratio” of the organization which (Current Assets divided by Current
Liabilities.) is 2.22: 1.
vi. Using Excel producing an Income Statement for the Sample
Organisation (see Case Study)
This is included within appendix
6

vii. Using Excel completing the Balance Sheet
viii. Using the Case study information describing the
profitability, liquidity and efficiency of the company based on the
results of ratio analysis
7

Profitability Ratio: This type of the fiscal parameters which are utilised in order to asses the
capability of the company in order make the more income by doing overtime in context to the
several components of the income statements and the balance sheet of the financial year from
evaluating the performance of the organization. Few of the main ratios of profitability are net
profit, gross profit, return on equity and return on assets.
 Gross Income = (Revenue – expense of Sales) / Revenue * 100
= (189,711 – 108,586) / 189,711 * 100 = 42.76%
 Net Income = (Net income/ Revenue) *100
= (43,057/189,711) * 100 = 22.70%
Interpretation: The above mentioned ratios tells that the percentage of income in case
of the earner revenue by the consideration of the non operating as well as operating costs.
Margins of the gross income is the balance of the amount which is left from the sales revenue
as well as margin of nety income refers to the amount of profits saved after the cost from the
income (Kazakova, and Sivkova, 2019).
Efficiency Ratio: It evaluates on how appropriate the organisation is utilizing its liabilities as
well as assets. This also determines how rapidly the company maintains to gather their debt
from the consumers and how much time it takes to attain the debt repayment and also
analyses the equity and asset turnover.
 Asset = Total Sales/ Total assets = 189,711/153,647 = 1.23
 Stock = Cost of Sales/ Stock = (108,586/28,571) = 3.8
 Accounts receivable Days = 365/ Debtors Turnover Ratio
=365/ 7.19 = 50.77 days
 Accounts Payable Days = 365/ Creditors Turnover Ratio
= 365/7.04 = 51.84 days
Interpretation: The average conusmer takes around 51 working days in order to pay
their loans. So, the organisation pays and takes their payments in this time period. This can
also act as the limitation for the company due to the days of receivable declines which might
be the issue for the firm.
Liquidity Ratio: This evaluates the capability of the organisation in order to pay their
obligation of loans and also suggest about the company's current solvency situation (Jain,
McInish, and Miller, 2019). It is based on the current liabilities, inventory and current assets.
The crucial ratios are quick and current.
8

 Current Ratio = Current Assets/ Current Liabilities
= 84,349/ 37,928 = 2.22:1
 Quick Ratio = (Current Assets- Stock)/ Current Liabilities
= (84,349 - 28571)/ 37,928 = 1.47:1
Interpretation: From the above ratios it states regarding the liquidating situation of
the company. A appropriate ratio which is current 2:1 as well as qucik ratio 1:1. As it can also
monitored that current assets to the liabilities is around 2.22 which states that the organisation
is solvent.
Section 4: Using examples from the case study describing
and discussing the processes this business might use to
improve their financial performance.
Financial Performance: It is the life long features of the organisation , as because looking at
the working of the ventures taking several activities of the investors which focuses on
deciding to invest the capital in the organisation. As it is very crucial in order to take the
appropriate decisions regarding the finance of the organisation while substantiating the
decision of investments. By, the maximization wealth is the crucial element since the survival
as well as existence of the firm which rely on the revenue. For it, fiscal ratios assist the
employees and fiscal company in order to make the appropriate judgement from the
conducted calculation (Ivanov, Macchiavelli, and Santos, 2020). This has been analyses that:
 Companies current assets in consideration to current liabilities has decrements by
around 80% from the earlier year. As it refers to he outflow of the finance and the
organisation is losing its liquidity.
 The increment in the net income is around 125 percent due to the non operating
expense like interest as well as operational expenditures has minimised.
 Satisfaction of the consumers proves that the task of enhanced investing and assisting
the success as well as growth of the business and because of this the retention of the
workers ratio has also been enhanced.
Improvements that can be done are as follows:
 Marketing techniques that can be used for the success of the company is to make the
cost and expenses low and conducting the effectual usage of the resources that will
assist in gaining more revenue like marketing n the social media is more cheaper as
well as wise method of tapping out the more audience at low cost.
 Usage of resources effectually and efficiently that will minimize the expense and
better the rates, and will give the outcome in leveraging the income. This will also
9

enhance the performance, productivity and the cost efficiency of the company
(Clemente, et.al., 2018).
Conclusion
From the above report, it has been concluded that financial management plays a
very important role in running a company. Allocate funds, make business decisions, the
profitability, financial stability, and solvency on which the organisation depends. Annual
accounting provides an overview of the company. These are mandatory for all
enterprises and must be audited internally and externally by authorized employees.
References
Clemente, et.al., 2018. Management towards financial sustainability for private health
companies. Management Research Review.
Ivanov, I.T., Macchiavelli, M. and Santos, J., 2020. Bank lending networks and the
propagation of natural disasters. Financial Management.
Jain, P.K., McInish, T.H. and Miller, J.L., 2019. Insights from bitcoin trading. Financial
Management, 48(4), pp.1031-1048.
Kazakova, N. and Sivkova, A., 2019. Financial security of economic activity: analysis,
control, risk management. In Global Trends of Modernization in Budgeting and
Finance (pp. 110-130). IGI Global.
Khan,et.al., 2019. Institutional quality and financial development: The United States
perspective. Journal of Multinational Financial Management, 49, pp.67-80.
Lulaj, E., 2021. Accounting, Reforms and Budget Responsibilities in the Financial
Statements. Accounting & Finance/Oblik i Finansi, (91).
Saptono, A., 2018. Entrepreneurship education and its influence on financial literacy and
entrepreneurship skills in college. Journal of Entrepreneurship Education, 21(4),
pp.1-11.
Sinervo, L.M. and Haapala, P., 2019. Presence of financial information in local politicians’
speech. Journal of Public Budgeting, Accounting & Financial Management.
Appendix:
Income Statement
10

11

Income Statement
12