Financial Management and Ratio Analysis for Improved Performance

This report discusses the importance of financial management, financial statements, and ratio analysis for improved performance of a company. It also provides a business review and ways to improve performance. The subject is finance and the course code is top15716 3005.

top15716 3005

Table of Contents
INTRODUCTION...........................................................................................................................3
SECTION-1.....................................................................................................................................3
Financial management and its importance..................................................................................3
SECTION- 2....................................................................................................................................4
SECTION-3.....................................................................................................................................5
Business review...........................................................................................................................5
SECTION-4...................................................................................................................................10
Ways for the improvement of performance...............................................................................10
CONCLUSION..............................................................................................................................11
REFERNCES.................................................................................................................................12

INTRODUCTION
Financial management refer to making plans, organising all the activities, directing and
controlling of financial undertaking in a company. It is important to analyse financial position of
company so that improvement can be made and it helps in achieving goals and objectives of
organisation (Osadchy and et.al., 2018). The report examines, importance of financial
management, main financial statement and use of ratios in financial management. Process which
company can use to improve financial performance is discussed. The report includes,
profitability, liquidity and efficiency of company based on result of ratio analysis is discussed.
SECTION-1
Financial management and its importance
Financial management:
Financial management refers to the management of finance that would assist the
company to attain its objectives. financial management is the strategic planning, organizing,
directing along with controlling that would enable the company to have a management of finance
in such a manner that would lead to have a throughout availability of funds across the business
operations (Brigham and Houston, 2021). Financial management helps in identifying current
financial position of company and better plans can be made to accomplish goals and objectives.
There are three type of financial management i.e., investment decision, dividend decision and
financing decision.
Importance:
Financial management plays an important role in improving the profitability of the
company. This is because with the adequate management of funds the company would be able to
attain high profitability. It also assists the company to provide economic stability along with
enabling saving to the company. This means that through the mode of financial management the
company would be able to maintain financial stability in terms of meeting with the rise and fall
of economic condition. Financial management plays a crucial role in an organisation as it helps
in improving employee performance and increases overall value of firm. It helps in providing
economic stability and encourages employees to save money (Faccia and Mosco, 2019). This is
beneficial for workers as it helps individual person to do financial planning. Managers are

responsible for handling all the activities in an organisation. They are managing funds and make
plans for proper allocation of funds.
This is beneficial in improving operational activity of organisation. When funds are properly
use then it reduces cost of capital and increases overall productivity of firm. Financial
management is beneficial for an organisation as it helps in identifying funds required to run
business and make arrangement for funds. It is essential to make plans and strategies for
allocation of funds and manage all the activities properly. It helps in reducing cost of capital and
maximises profit of organisation. Financial management plays a crucial role in an organisation
because it helps in improving overall performance of company (Lessambo, 2018). Managers of a
company are handling all issues and managing funds so that work can be done properly. When a
company has good financial position it increases overall productivity of firm.
SECTION- 2
Financial statement refers to maintaining record of financial activities in an organisation.
With the help of financial statement correct position of company can be identified. It is essential
to make financial statement so that changes can be made in plans as it helps in achieving goals
and objectives. It is essential to make financial statement so that targets can be achieved. There
are four financial statement i.e., balance sheet, income statement, cash flow statement and
statement of shareholder’s equity. These help in making better plans and goals can be
accomplished. Balance sheet helps in identifying current financial position of company. In
balance sheet assets and liabilities of organisation are mentioned and it helps in generating more
profit (Hasanaj and Kuqi, 2019). It is essential for an organisation to make plans and strategies so
that goals can be achieved.
There are some benefits of financial statement like, better debt management, identifying
trends, managing liabilities, progress and compliance, helps in tracking real time. It is essential to
make financial statement because it helps in providing information about results of operation,
current position of company, cash flow of an organisation. This help in making better plans and
changes can be made for growth and development of company. It is essential to make balance
sheet and cash flow because it helps in determining whether organisation is having funds and
estimation of profit can be done. With the help of financial statement better decision can be taken
which is beneficial in growth and development of company.

Ratios are used in an organisation because it helps in measuring relationship between two or
more elements of financial statement. Ratios are calculated because it helps in doing comparison
between two organisations and helps in taking good decision. It is essential to calculate ratios as
it is used most effectively when firms want to compare their performance (Traina, 2018). After
analysing ratio, changes can be done and it helps in performing better than others. Ratios are
determine as it helps in identifying profitability, liquidity and solvency. Managers of a company
analyse ratios because to know financial performance of firm and identify points in which
improvement is required. Calculating ratio is beneficial because it helps in forecasting and
making plans for future, budgets can be made, measurement of operating efficiency. It also helps
in providing indication of liquidity position, comparison can be done between two firms.
Evaluating ratio helps in giving indication of long term solvency and better plans can be made
for future. When ratios are calculated it help in measuring performance and comparison can be
done.
SECTION-3
Business review
In order to make an analysis of the financial performance of the company ratio analysis
plays an important role. this is because with the analysis of the ratio the financial health of the
company would be able to get analysed (Herman Ruslim, 2019).

As per the above business review it can be interpreted that the performance of the company
is raising while making a comparison of 2015 and 2016. This is because the sales proportion of
the company in 2015 was 179587 while it raise in 2016 and become 189711. This shows a raised
proportion of sales. The profitability of the company raised by 127% which also indicate that the

business performance of the company is positive and growing. An increase in shareholder’s
equity is also observed by 32.9% which shows that the company would have good proportion of
equity.
Profitability:
While making an analysis of the profitability ratio which depict the profit earning
capacity of the company it can be observed that that profitability of the company is also raising.
Profitability ratio measures the profit earning capacity of the company (Nalurita, 2017). This is
because the net profit margin of the company is 22.7% while the gross profit margin is 42.8%.
These positive percentage of the profitability ratio of the company indicate good financial
healthy. Also as the company’s net profit ratio i.e. 22.7% is higher than the ideal ratio which is
20%. This shows that the financial performance of the company is positive.
Liquidity:
While making an analysis of the liquidity ratio which make an analysis of the company’s
capacity in terms of making a repayment of the short term debt, it is observed that the company
persist the adequate liquidity (Lalithchandra, 2021). As the current ratio of the company is 2.22
which is higher than the ideal ratio of 1:2. This indicate that the company have good liquidity
while making it comparted it with the ideal ratio. This also shows that the company have
capacity that it can meet its short term debt. In the same way the quick ratio of the company is
1.47.1 which is again higher than the ideal ratio of 1:1. This means company persist the high
proportion of cash that it can make repayment of its short term liability and debt.
Efficiency:
In case of analysing the efficiency of the company it would be not be wrong to state that the
company efficiency is high. As per the analysis of the asset turnover ratio which is 2.26 which is
although not approaching the ideal ratio of 2.5 but it is nearby. This state that the asset of the
company are quite efficient in terms of generation of sales with respect to the assets. This shows
that the company have highly efficient assets that can assist it for generation of high sales. In the
same while analysing the inventory turnover ratio it can be observed that the ratio of the
company is 105.36 days which is equal to 3.5 month which is higher than the ideal ratio of 1-2
month. This shows that the company will make a sale and restock its inventory within 3.5 month
which is somewhat high and may lead to have an impact towards the company.

In case of making analysis of the receivable days which is 54 and payment days which is 72
it would be right to state that the company’s efficiency with respect to make a receivable is low
and that of payment is high. This is considered as good for the company because with shorter
receivable days the company would make a receipt in low days while make a payment in high
days in terms of holding the funds and earn high return.
Overall the company’s performance on the basis of ratio analysis and business performance
is adequate and high which shows that the company would be able to earn high success and
profitability.
SECTION-4
Ways for the improvement of performance
Although the performance of the company is good but still with the adoption of certain
measures it can make improvement in its performance which would further be reflected in its
financial ratio. These step would include the adoption of adequate marketing strategy that would
assist the company to raise its sales and thereby profitability. In the same way with the mode of
adequate marketing including digital and social media concentrated marketing the company
would be able to make good communication with its customers and thereby raise its profitability
and sales proportions.
In the same with the adoption of tighter credit policies the company may make faster
recovery. Likewise, with the enabling of discounting policies the company would able to make
faster recovery and thus enable the company to raise the funds. Also it would be adequate
measure that with the persistence of good payment ratio, making an investment of funds in such
form that would enable the company to raise its earning in terms of return would also make
contribution towards the raising of the profitability.
Similarly, with the aspect of focus towards the pricing policies and sales tactics the company
would further make an improvement in its performance. This is because if the sales of the
company would be high then its financial performance would also be raised. Likewise, with the
adoption of adequate pricing policies including the value based pricing or the charging of high
price would enable the company to have an earning of high profitability. This is because with the
enabling of service and selling of product at high price the company would not only be able to
make a recovery of its cost but at the same time would also able to earn high percentage of profit.

CONCLUSION
From the above report it can be concluded that the financial management is an important
function of the organization that enable it to have management of funds along with assisting the
company to have a smooth flow of operation. In the same it is also summarised from the above
report that with the aspect of financial ratio the financial health of the company would be able to
get analysed. This would not be wrong to state that the company would make an analysis of its
financial health with the aspect of making an analysis of financial ratio.

REFERNCES
Books and Journals
Brigham, E.F. and Houston, J.F., 2021. Fundamentals of financial management. Cengage
Learning.
Herman Ruslim, M., 2019. The Effect Of Financial Ratio On Company Value With Inflation As
A Moderation Variable. Jurnal Akuntansi. 23(1). pp.34-46.
Lalithchandra, B.N., 2021. Liquidity Ratio: An Important Financial Metrics. Turkish Journal of
Computer and Mathematics Education (TURCOMAT). 12(2). pp.1113-1114.
Nalurita, F., 2017. The effect of profitability ratio, solvability ratio, market ratio on stock
return. Business and Entrepreneurial Review. 15(1). pp.73-94.
Osadchy, E. A., and et.al., 2018. Financial statements of a company as an information base for
decision-making in a transforming economy.
Faccia, A. and Mosco, D., 2019. Understanding the Nature of Accounts Using Comprehensive
Tools to Understand Financial Statements.
Lessambo, F. I., 2018. Financial Statements. Analysis and Reporting.
Hasanaj, P. and Kuqi, B., 2019. Analysis of financial statements. Humanities and Social Science
Research. 2(2). pp.p17-p17.
Traina, J., 2018. Is aggregate market power increasing? production trends using financial
statements. Production Trends Using Financial Statements (February 8, 2018).