Importance of Financial Management and Ratio Analysis for Business Performance Improvement

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
Financial management may be considered as that department or functions in
a firm which is related to the cash, credit, expenses and profit, so that firm can carry
out its objective as satisfactory as possible. In simple terms this is the procedure of
managing the capital in the company (Spearman, 2019). The following report is
going to focus on the concept of financial management and its significance for the
business organization. This report also discussed about the various forms of
financial statements and the ratios in management. Afterword, with the help of
balance sheet an income statement is completed and an analysis has been
performed on the outcome of the ratios. Furthermore, in order to improve the
performance of the company for its development an analysis has been cover in this
report.
Section 1: Definition and discussion of the concept and
importance of financial management
Financial management is defined as the method of planning, organizing,
controlling and directing all the financial functions of the business like arranging of
fund, procurement of fund, utilization of fund and many more. With the help of
financial management, a balance has been creating among the procurement of fund,
financial planning, profit administration and sources of funds (Naranjee, Sibiya and
Ngxongo, 2019) . This area of firm is responsible for managing the resources, asset
and liabilities in a very effective manner which assist them in increasing their
sustainability and revenues. An important role is played by financial management
within the organization. The importance of financial management has been
discussed below: -
 Financial planning: - this is being considered as one of the most important
importance of financial management. This assist in deciding the need of fund
by the business organization. All the credit for the success of the business is
totally depend on the financial planning of the organization.
 Allocation of fund: - financial management assist the business organization
in the allocation of the fund in a very effective manner. If the proper use of
allocated finance to the asset is done then this enhances the operational
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proficiency of the firm. The proper allocation of the fund result in reducing
expenses and increase in capital for the company ( Wiharno, 2018).
 Investment opportunities: -if the company is good in managing the finance
and saving then this allows the management of the company to explore the
different investment opportunities. These opportunities not only assist the
organization in creating wealth but also help them in understanding the risk
and return on investment.
 Long term stability: -this assists the organization in ensuring the long-term
sustainability. This not only monitor or check the profits but also allocate the
cost and fund in a very effective manner which will help in minimizing the idle
expenditure. The proper financial management also ensure the economic
growth. This allow the firm to expand its wealth creation which help them to
financially and improves their sustainability in the market.
Section 2: Description and discussion of the main
financial statements and explain the use of ratios in
financial management
The financial statement may be defined as those written documents which
comprises of all the transactions of the company which is related to the money.
These statements not only assist in conveying the financial position but also assist in
conveying the performance of the business(Boma, 2018) . These statements are
made by the financial department of the company and audited by the accountants,
firms, government agencies and many more. It is very important for the management
of the company to keep all these statements in a very proper manner because these
statement act as a summary of the company financial situation and clearly defined
the current status. There are different types of financial statement which are
mandatory to made form which some of them discussed below: -
 Balance sheet: - this is considered as the most vital accounting statement
which is mandatory to be made by the business organization. This statement
is bifurcate into two portion i.e., asset and liabilities in which asset of the firm
are shown on the right hand side and the liabilities of the firm are shown in the
left side. This statement is majorly made by the organization in the end of the
financial year or in the end of the year which shows their financial health.
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