Importance of Financial Management: Concept, Significance, and Use of Ratios

Importance of financial
management



INTRODUCTION
The financial management is an essential aspect to run the business effectively. It ensure that the
organisational activities run smoothly and efficiently without any disturbance and hinder enc in
allocation of the fund. This report will define importance of the financial governance, concept of
the financial statement and usage of the ratio in organisational operation (Asche, Sikveland and
Zhang, 2018). It will discussed the certain ration such as , liquidity, profitability and efficiency
ratio by using example of the case study with the help of balance sheet and income statement.
Business performances reviews are done by analysing financial performance of a business. To
improve the organisational performance, what type of strategies, the company need to refer. From
the case study, what factors help to analyse the business performance.
Concept and Importance of the financial management
Concept of the financial management refers to directing, controlling, planning and the
organisation of monetary undertaking within the business organisation (Bueno Merino, Feuilloley
and Grandval, 2019). Beside, it applying incorporate principle of the management to the financial
resource of the organisation, additionally they also have some impact which is mentioned below:
 Effective and ideal usage of the assets.
 Keep enough inventory of the assets for organisation
 Making safe and genuine venture freedom to put the resources into.
Importance of the financial management
 Profitability- If the organisational resources and books of accounts are managed properly,
then it will increase the organisational productivity. It also make ensure to analyse the
development opportunity and efficiency of the business.
 Financial decision- It help the company in determining its financial requirement of
business concern and also lead in taking financial planning of concern. In respect of the
business concern, the financial planning is a significant part that help in promoting an
enterprise.
 Funds acquisition- The financial management include acquisition of the required finance
to business concern. The acquiring needs of fund play major part of financial management,

that involve possible source of the finance at a minimum cost (Chan, Chen and Koh,
2021).
 Increase value of firm- The financial management is very essential in field of enhancing
investor's wealth and business concern. The ultimate aim of a business organisation
concern will accomplish maximum profit and a higher probability that leads in
maximization of investor's wealth as well a the country.
 Proper use of the fund- A proper allocations and use of the funds leads in improving
operational efficiency of business concern. By using these fund properly, the company's
manger can minimize cost of the capital and enhance the firm's value (Habib, Hasan and
Al‐Hadi, 2020).
Main financial statement and explain use of the ratio in the financial management
The financial statement records are very essential and compulsory for all the listed
companies. It depicts organisational monetary activities. These statements provide financial data
and show fiscal health of an organisation. These are required to get audited and financial manger
are responsible for it. These records can be audited by external and internal sources. It is
guaranteed that those statements which are publicized by organisation are not forged and are very
authentic. Theses statement are mentioned below:
 Profit and loss statement- This statement show revenue, income, expenses and
outstanding or accrued income and expenses that has been occurred in financial period. It
depict those deals which has been done in this period and what cost the organisation faced
to make its sales. By take of the wages and cost of that period the business show their net
profit for a given peridium. This is an end element in income statement (Johnston, Reichelt
and Sapkota, 2018).
 Statement of the financial performance- It is a crucial financial assertion within the
organisation because it provide the comprehensive understanding to clarinets about
monetary information of the firm. It shows all the assets and liabilities that an organisation
is committed for paying in future. Additionally, it is perceived as the monetary records that
is fundamentally prime concern for the business organisation. Basically, this declaration
reflect that where the company stand monetarily at particular time period.