Importance of Financial Management and Ratio Analysis for Business Finance

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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Table of Contents
Introduction................................................................................................................................2
Section 1.....................................................................................................................................2
Definition and discussion of the concept and importance of financial management.............2
Section 2.....................................................................................................................................3
Description and discussion of the main financial statements and explain the use of ratios in
financial management............................................................................................................3
Section 3.....................................................................................................................................4
Completing the Information on the ‘Business Review Template (Ensure that you display
your calculations for this detail).............................................................................................5
Using Excel producing an Income Statement for the Sample Organisation (see Case Study)
................................................................................................................................................7
Using Excel completing the Balance Sheet...........................................................................7
Using the Case study information describing the profitability, liquidity and efficiency of
the company based on the results of ratio analysis................................................................8
Section 4.....................................................................................................................................9
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..................................................................................................................................12
Income Statement.................................................................................................................12
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Introduction
Business finance refers to the credit and corpus of funds employed in the business for
buying raw materials and assets in order to initiate economic activities. Therefore, the
required amount of fund must be provided beforehand for the effective as well as smooth
business operations. To manage this finance, the concept and importance of financial
management practices and techniques have emerged (Vernimmen, Quiry and Le Fur, 2022).
The present report would include the discussion related to how financial management is
important for the contemporary businesses along with the describing the several statements
that businesses prepared for displaying their financial health & performance at a point of time
or during the period respectively. Also, how financial managers uses ratio analysis for the
evaluation of business performance between years and between the business & other players
in the same industry will be explained. Further, by referring to the case study information, the
income statement and balance sheet will be prepared along with calculating different
financial metrics to analyze the performance of business in the case on several grounds such
as efficiency, liquidity and profitability. At last, the processes or steps the business could take
to improvise their performance will be discussed.
Section 1
Definition and discussion of the concept and importance of financial management
Financial management is defined as the managerial role of planning, directing, organizing
and controlling the activities of financial nature that is, effective procurement as well as
utilization of funds available with the business. In other words, while managing finance of the
business, management resorts to applying general principles of management to the
organization’s financial resources Quiry, Le Fur and Vernimmen, 2022 ().
Financial management can be explained differently as the managerial activity meant
for efficient procurement and allocation of funds to different activities like operating and
investing with the motive of getting the desired profitability at the end of the period.
The financial management includes two key aspects, such as the following:
Procurement of funds: From which source the funds should be obtained is the key concern
for every business and through financial management mobilization of financial resources in
an innovative manner is possible. The financial management offered several techniques with
the help of which it is determined that how much funds should be obtained from different
sources keeping in mind low risk and low costs to the business.
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