Financial Management and Ratio Analysis for Business Growth

Applied Business
Finance

Contents
INTRODUCTION...........................................................................................................................3
SECTION 1.....................................................................................................................................3
Describe the concept and the significance of financial management..........................................3
SECTION 2.....................................................................................................................................4
Explain how financial ratios are utilised in financial management and what the primary
financial statements are?..............................................................................................................4
SECTION 3.....................................................................................................................................5
(i). Calculations of different financial data using the case provided...........................................5
(ii) Income statement prepared using Excel................................................................................6
(iii) Prepare balance sheet with the help of Excel.......................................................................7
(iv) Different ratio calculations which interprets the profitability, liquidity and efficiency of
the business..................................................................................................................................8
SECTION 4.....................................................................................................................................9
Using illustrations from the case study, define the business framework that is used to drive
business growth...........................................................................................................................9
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11
APPENDIX....................................................................................................................................12

INTRODUCTION
Financial management is the process of coordinating and controlling a corporation's
economic activities in helping organizations obtain higher returns. It uses a number of
accounting statements and methods to track the firm's productivity and the efficacy of the finance
executive team (Aifuwa and Embele, 2019). The concept and relevance of financial planning, as
well as a variety of statements related to accounting and ratio analysis, are all explained in this
report. The income statement in the appendix goes into more detail about an organization's
performance in terms of profitability, solvency, and reliability.
SECTION 1
Describe the concept and the significance of financial management.
Finance is necessary in order for the business to run smoothly and properly. The branch of an
organisation responsible for the preparation, scheduling, supervising, and administering of
financial activities is classified as financial management. It assists in satisfying the demands of
stockholders while also boosting sales, profit, and growth for the organisation.
 Profitability: It analyses the company's productivity improvements in order to increase
profitability and develop a long-term approach.
 Financial Decisions: It assists in the formulation of critical financial decisions inside the
company. A bad decision might put the entire firm in jeopardy. It alerts the enterprise to a
variety of threats and opportunities, as well as helps it in establishing the proportion of
shareholder capital and secured loans (Block, Hirt and Danielsen, 2018).
 Fund Allocation: Profits can be used to distribute monetary resources and payouts in the
most efficient way possible. It boosts the company's operating viability while improving
the functional ratio and lowering the cost of capital.
 Formation of the capital structure: It must be implemented in order to calculate the
required capital. Every business initiative is dependent on how much capital a company
already has or how much it wants to raise coming from external investors.
 Economic stability: It creates a safe environment to the firm since it represents a solid
financial structure. By eliminating degrading practises, it can enable the firm earn more
money.

SECTION 2
Explain how financial ratios are utilised in financial management and what the primary financial
statements are?
Accounting Records are the information that must be kept by the company. It represents the
economic activity and position of the company. Internally and externally audited by public
officials, auditors, and firms to assure the tax's trustworthiness and validity, as well as for
investment purposes (Brigham and Houston, 2019). Some of the vital statement which are
mostly used are:
 Balance Sheet: It depicts a corporate resource, obligations, and shareholder equity all
across the duration of a fiscal year. Both the assets and liabilities parts should be
equivalent; and if they are not, the transaction is not being recorded correctly. It also
shows the cash and bank balances for the current fiscal year.
 Income Statement: It concentrates on the industry's income and expenditures in order to
calculate the profitability, which is referred to as net earnings or profit. It is preserved to
demonstrate how often money the business makes. To obtain at the annual year's
earnings, add up the revenue and deduct the expenses incurred over the fiscal year. It is
divided into two parts. First, gross profit is calculated using operational income and
expenses. Non-operating expenses are subtracted from net profit, while non-operating
income is added (Ingale and Priya, 2018).
 Cash Flow Statement: It assists in identifying the need for outside funding. It
determines the cash intake and outflow for operations, investments, and financing.
Operating transactions include modifications in existing liabilities and the assets, along
with interests and tax payments. Investing operations include the buying or selling of
capital expenditures, and also any payments made in connection with a merger or
acquisition. Financing activities include the issuing of capital reserves, debt instruments,
mortgages, and dividend payments.
Ratios: It is utilised to compare the position of two or even more sections of a financial
statement. It is a summary of the financial information found in the accounting records. It
evaluates the economic performance of the organisation and allows it to be proactive. It