Importance of Financial Management: Concepts, Financial Statements, and Ratio Analysis

This report discusses the importance of financial management, covering concepts like profitability, funds allocation, and economic stability. It also describes financial statements and their requirements for ratio analysis. The report provides insights into liquidity, profitability, and efficiency of an organization through ratio analysis. It includes a case study and templates for business review and balance sheet.

Assessment Name
Importance of
Financial
Management

Table of Contents
INTRODUCTION ..........................................................................................................................3
PART 1 ...........................................................................................................................................3
Elaborate and provide different concept and importance for effective financial management . 3
PART 2 ...........................................................................................................................................4
Describe all the financial statements which explains requirements of ratios with financial
management............................................................................................................................4
PART 3 .........................................................................................................................................6
USING THE GIVEN TEMPLATES: ...................................................................................6
Complete in details about ‘Business Review.........................................................................6
Giving Excel in order to complete Balance Sheet ...............................................................7
Provide information about Case Study and describe the liquidity, profitability and also
efficiency of organisation on the basis of ratio analysis. .....................................................9
PART 4 .........................................................................................................................................10
Give examples about case study and also describe and analyse different processes used in
order to improve financial performance. ............................................................................10
CONCLUSION .............................................................................................................................11
REFERENCES..............................................................................................................................12
Appendix:.......................................................................................................................................13

INTRODUCTION
Finance and its management is mainly is a crucial areas for the business practises through
which all the effective working an the management of the business is attained. This embarks and
manages the allocation of funds and along with it helps in attaining the balance and the smooth
functioning of the business practises. In this report their will be given importance of financial
governance and along with it their will be provided the financial statements for all the effective
usage of ratios in order to have the general operations of the company(Yong and Tan, 2017).
Their is also been given that some of the major ratios like the efficiency, profitability, liquidity
ratio is being provided with the general example from all the income statement along with the
balance sheets. In order to analyse the financial performance their will be review the effective
business performance. Further their will also be provided the strategies which the firm needs and
also the methods through which the performance can eventually being increased of the
organisation. This case study will also give the factors through which the analysation of the
general factors and their performance are being provided.
PART 1
Elaborate and provide different concept and importance for effective financial management
Financial management covers an important method through which all the controlling,
directing, planning and organizing in order to manage the monetary undertakings through the
organisation. This helps in incorporating all the principles of management through which all the
financial resources in the association are managed. it creates a major impact in all the financial
administration through which all the framing of culture is maintained(Zietlow and et. al., 2018).
 Their will be made the guarantee in all the investors for managing the profit from the
venture.
 Properly managing the inventory asset for the association.
 Effective and proper ideal use of the assets. Managing and providing the safe venture and the genuine management of the resources.
Importance of Financial Management Profitability- This is the important areas as their seems to be important that all the
records and the book of accounts are needed to be systematically managed. Their implies

that it will help out in managing and maintaining the smooth analysation and the
developing of all the opportunity through which the company manage and develop the
efficiency and the development. Financial decisions- This is mainly the critical risk and the management through which
all the critical money are being taken altogether. Their implies to have the proper oriented
choice of the organisation as it is important to serve and maintain all the decision to be
for the benefit of the company. This helps in analysing and knowing all the various
choices and the risks which are being taken by the investors capital and also for the
acquired assets. Funds allocation- This is generally the allocation and the management of the fiscal
resources which are managed and distributed for the profit of the organisational. It helps
in enhancing the fiscal ratios and also in reducing all the cost through which the
increment in the monetary state will be managed. Capital structure formation- This embarks that all the raised capital and the general
structure which is being farmed are covered under it. This infuse that all the design are
being made in a proper manner and the company there by manages and maintain all the
capital with the amount that are being applied though all the outside resources.
 Economic stability- It helps in providing the business through all the immovability and
there is considered to have the monetary framework through which all the business
activities are associated and managed. It acquires more benefits through which the
corrupting areas and the benefits are being implicated(Siekelova and et. al., 2017).
PART 2
Describe all the financial statements which explains requirements of ratios with financial
management
Financial statement is mainly the record through which all the company use to maintain
the compulsory areas and the listed ways in order to manage all the monetary activities in the
firm. All such statements manages and provides all the financial data and this provides the fiscal
health policies and the he,lath of the organisation. It is generally The mandatory areas through
which all the responsibility in regard to the financial manager and the audited areas through
which the responsibilities are being given through all then external sources. it is implies and are

managed through all the external and the internal sources. This manages all the guaranteed areas
through which the company will not be forged and all the authentic areas are being covered.
Some of the main statements are like: Statements of financial performance- It is an important areas through which all the
financial assertion are applied in the companies as this manages all the understanding in
the comprehensive manner and also provides the cvle4ints to manage all the monetary
value and information for the firm. This provides the details about the asset and the
liabilities through which all the payment will be managed in future. It also perceive all
the records in a monetary manner which is mainly the prime concern in all the
organisation. All such declaration will reflect the monetary areas and the corporate strand
in the particular time period. Loss and profit Statement- This provides the expenditures, revenue, income, outstanding
expenditure and all the outcomes which are being managed in the financial period. This
implies and provides all the deals regarding the costs and the other areas to which all the
corporate yields are managed in sales. Through the deduction there is being provided the
wages, costs and all the general period of the company along with the net profit. This also
provides the end component which manages all the income statements(Park and Maher,
2020).
 Cash flow statement- it is mainly the fiscal report which guides and provides all the
inflow and the outflow of all the net amount of cash which is outlined and manage the
business in particular time period. This helps in displaying all the fluctuations from the
financial activities, operating systems, investing in a particular time frame. All such
operational activities will be made to manage the derivations in which the main resource
and the current liabilities for all the duty and the general expenses are being managed.
Through all such financing services and exercises their opt to give all the outflow and the
inflow for all the shareholders capital, advances, payment of dividends and the
debentures.
Ratio uses in financial management
this monetary ratio analysis is an important way through which all the bookkeeping and
the analysation of some relevant and the important financial information is managed. This helps
all the managers to make the general asserted work on the particular time period and it will also

provide the administration for the firm resources. This is an important tool through which all the
affirmation in regard to the resources are being provided. It will not have any limit and considers
to have the survey for the monetary presentation for the company. This manages and helps to
direct all the top management and along with it also manges to have the long and the short
management with all the classified areas and the corporate trends. It implicates all the decision
making by opting all the previous issues in the years. The main principles of employment in
proportionate assessment are like: Operational efficiency- This ratio helps in managing and also in deciding all the
solvency, liquidity and the overall productivity in the companies. This is mainly being
made in order to ad minster and keep the expenses and their expenses low so as to apply
the high skills in order to manage the authoritative objectives for all the enterprise. Financial ratios which manages and helps in supervision of all the decisions- all the
monetary reports and the patterns made for the returns, benefits, remuneration and all the
capacity in the acquisition for the organisation is computed and utilised. This involve all
the definite decision making and all the propositions through which all the future benefits
and their further brief understanding will; be applied in future (Dobrovic and et. al.,
2018).
 Comparative analysis- It complies to have the components through which all the
monetary reports and the information regarding the proportional analysis in the
organisation is managed. This computes to have the business terms and will assess ball
financial performance which are compared in the structural base through all the similar
industry.
PART 3
USING THE GIVEN TEMPLATES:
Complete in details about ‘Business Review.
The Net Profit for the year 2016 , is £43,057. (2015: £18,987,000).
The Company’s key financial and other performance indicators during the year were as
follows:
2016
£’000
2015
£’000 Change %

Turnover (continuing operations) 189711 179587 +5.6%
Profit for the financial year 43057 18,987 +126.77%
Shareholder’s equity 83802.75 63,057 +32.9%
Current assets as % of current liabilities 222 % 304.00% -82%
Customer satisfaction 4.5 4.1 +10%
Average number of employees 649 618 +5%
Turnover from continuing operations increased by 5.6% during the year, primarily due to the
acquisition of the Extinguishers business on 1 May 2015, which made a full year’s contribution
in 2016(Dalli, Gonzi and et. al., 2019).
Gross Profit = £81,125
Net Profit = £43057
Net Profit increased in 2016 by 126.77% during the year.
Shareholders’ equity increased by 32.9% by £20,745.75.
The company’s “quick ratio” (Current Assets (excluding stock) divided by Current Liabilities) is
1.47:1
The company’s “current ratio” (Current Assets divided by Current Liabilities.) is 2.22: 1.
(The calculation are shown in appendix)
Giving Excel in order to complete Balance Sheet

Provide information about Case Study and describe the liquidity, profitability and also
efficiency of organisation on the basis of ratio analysis.
 Profitability ratio- This is mainly the category of all the financial parameters which are
being used by the companies in order to manage and attain the overtime elements and the
relations through which the income statements along with balance sheet of fiscal years
are being made so as to analysable the performance of firm this provides the most prior
responsibilities some important profitability ratios are mainly net profit margin, gross
profit margin
 Gross Profit Margin= (Revenue – cost of Sales) / Revenue * 100
= (189,711 – 108,586) / 189,711 * 100 = 42.76%
 Net Profit Margin = (Net profit/ Revenue) 100 = (43,057/189,711)* 100 = 22.70%
Interpretation- all above ratios manages percentage of profit as with the revenue being generated
with operating and all the non operating expenses. Gross profit is 42.6% along with the net gain
of 22.7 this will imply the decrease by 20%. company will now have to overhead all the cost in
order to gain more income(Cossa, Madaleno and Mota, 2018).
 Efficiency Ratio- This is been given in order to analyse and know the use of the assets
buy the company and the liabilities. This will analyse the method through which it will
demonstration that in which manner the company will collect all their payments from
customers. It will also provide the repayment of the debts with the equity turnover. The
main asset will be the stock turnover, asset turnover, receivable turnover and the payable
turnover.
 Asset turnover Ratio= Total Sales/ Total assets = 189,711/153,647 = 1.23
 Stock Turnover Ratio = Cost of Sales/ Stock = (108,586/28,571) = 3.8
 Accounts receivable Days = 365/ Debtors Turnover Ratio
=365/ 7.19 = 50.77 days
 Accounts Payable Days = 365/ Creditors Turnover Ratio = 365/7.04 = 51.84 days
Interpretation- Their were taken about 51 days to pay the debts b y the average persons. And the
creditors will take 52 days to mange and receive payments. But it implies to have the limitations
as all the receivable days are decreased and their will be prompted the minor difference in the
company. This provides the turnover of 3.8 which manages and complete the investment for the

stock flows in 4 times. The total asset managed will be 1.23 through which all the revenue with
the sustaining of the industry is managed.
 Liquidity Ratio- This determines ability of the firm through which the payment of the
debt and the obligation as it provides the details about the solvency of firm. It is based on
the current liability, current assets, stocks.
 Current Ratio = Current Assets/ Current Liabilities
= 84,349/ 37,928 = 2.22:1
 Quick Ratio = (Current Assets- Stock)/ Current Liabilities = (84,349 - 28571)/ 37,928 =
1.47:1
Interpretation- This will provide the liquidating position being made by the company. The idea
ratio is 2:1 and their provides the ratio of 1:1 all the current asset ration implies will be 2.22
through which this is managed that the company is solvent. But managing and excluding the
stocks in current asset their quick ration is 1.47 which manages the pay-off liabilities(Bapat,
2020).
PART 4
Give examples about case study and also describe and analyse different processes used in
order to improve financial performance.
The financial management ratios manages all the organisation through which the correct
judgements and the calculations are maintained they are like: Current ratio is mainly declined through 82% as through the previous years where
outflow of cash is maximum and the company loose its liquidity. Increased net profitability is 126.77% through non operative cost like administrative
expenses. Satisfaction of customers where all the investment and the growth is majorly being
supported and the growth of the firm with retention ratio is increased.
 Shareholder's equity helps out in increasing the selling shares with the raised revenue
and operating expenses.
Improvements are like:

 Marketing strategies- these are mainly for attuning the betterment and also drive down
cost with the utilization of resources in order to generate income . It give s the social
media a cheaper and easy option to reach.
 Use of resources efficiently- This will increase pieces and lower cost and manage the
leveraging of profits for growth and production(Alexandro, 2019).
 Working capital requirements- thorough reducing inventory and managing the turnover
through leverages.
CONCLUSION
From this report it can be summarised as financial management is the important areas
which manages all the operation in the business. It manages all the allocation of the funding and
also the decisions through which the profitability, solvency and the economic stability can be
managed. Their is given the outflow and the inward management of the profits, inflow, outflow
with the efficiency is managed. Further it is also analysed that the high net profit mainly cover
the low inventory cost which increases the net earnings.

REFERENCES
Books and Journals
Alexandro, R., 2019. Factors Affecting Student Financial Behavior in Indonesia. American
Journal of Social Sciences and Humanities. 4(2). pp.380-391.
Bapat, D., 2020. Antecedents to responsible financial management behavior among young
adults: moderating role of financial risk tolerance. International Journal of Bank
Marketing.
Cossa, A.J., Madaleno, M. and Mota, J., 2018, September. Financial literacy importance for
entrepreneurship: A literature survey. In International Conference on Innovation and
Entrepreneurship (pp. 909-XIV). Academic Conferences International Limited.
Dalli Gonzi, R and et. al., 2019. The Dali Model in Risk-Management Practice: the Case of
Financial Services Firms. Journal of Risk and Financial Management. 12(4). p.169.
Dobrovic, J and et. al., 2018. Non-financial indicators and their importance in small and
medium-sized enterprises. Journal of Competitiveness. 10(2). p.41.
Park, S. and Maher, C.S., 2020. Government financial management and the coronavirus
pandemic: A comparative look at South Korea and the United States. The American
Review of Public Administration. 50(6-7). pp.590-597.
Siekelova, A and et. al., 2017. Receivables management: the importance of financial indicators
in assessing the creditworthiness. Polish Journal of Management Studies, 15.
Yong, H.N.A. and Tan, K.L., 2017. The influence of financial literacy towards risk
tolerance. International journal of business and society. 18(3). pp.469-484.
Zietlow, J and et. al., 2018. Financial management for nonprofit organizations: policies and
practices. John Wiley & Sons.

Appendix:
Calculations performed for the above case study
 Net Profit of 2016= Revenue- Cost of goods sold- non-operating expenses
= 189,711 – 108,586 – 38,068 = 43,05
 Change in profit %= (Current year– previous year profit)/ Previous year Profit
= (43,057 – 18,987) / 18,987 = 126.77%
 Shareholder's equity = 63,057*32.9% = 20745.75
= 63,057+20,745.75 = 83802.75
 Current assets as % of current liabilities = 324% - 82% = 222%
 Gross Profit = Net profit+ non-operating expenses
= 43,057+ 38,068 = 81,125
 Quick Ratio = Current Assets - Stock/ Current Liabilities
= 84,349 - 28,571/ 37,928 = 1.47:1
 Current ratio = Current Assets/ Current Liabilities = 84,349/ 37,928 = 2.22:1
 Debtors Turnover Ratio = (Net Sales/ Debtors) = 189,711/ 26,367 = 7.19
 Creditors Turnover Ratio = Cost of Sales+ Stock/ Creditors
= 108,586+ 28571/ 19,493= 7.03
Income Statement