Importance of Financial Management and Financial Statements in Business Report

This report discusses the importance of financial management and financial statements in a business report. It includes a discussion of financial statements, ratio analysis, and recommendations for improving financial performance.

Business Report
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Contents
Introduction p
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 p
Appendix p
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Introduction
Business reports are developed for reporting over the evaluation and analysis conducted of
respective organization towards a particular issue, certain set of circumstances or any
financial operations that relates to the performance of the entity. The most important function
for the purpose of developing business reports is to make sure that each and every relevant
information about the organization and the business been conducted is communicated
efficiently and succinctly the respective parties. This is also a business report where several
financial aspects of case study organization is discussed and elaborated. Report begins with
discussing the importance of financial management within the Business. Along with
describing the use of financial statements and their purposes for conducting effective
financial management (Ameliawati and Setiyani, 2018). Moving further, two financial
accounts that are income statement and balance sheet are developed for the case study
organization as well as missing figures are filled in the business review template. The end of
the report, with the help of calculating number of ratios and analysis is conducted about the
business performance and its efficiency as well as growth. Moreover, moving towards the
end of the report some recommendations are also provided to the business for improving the
financial performance and allowing them a chance to grow and develop further successfully
Section 1: Definition and discussion of the concept and importance of financial
management
Financial management is a term which refers to the strategic planning, organizing,
directing and controlling of all the financial assets and undertaking of a business organization
or a respective institute. Financial management is a process which has a huge importance for
a business entity where there are number of management principles applied in order to
manage all the financial assets of the company and playing an important role in the physical
management of the entity.
Financial management is related to taking financial decisions and making the most
prominent choices in the financial field providing the company most of the benefits. There
are three major types of financial management decisions that are being made by the owners
of the entity or the financial members of it. The three types of financial management
decisions are investment decisions, decisions and dividend decisions.
Every organization either small or large need financial management as it is the area or
the function of it which is dealing with and concern with the profitability, expenses, cash and
credits etc. of the business. The factors which makes financial management and important
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element of a business entity are planning, controlling, organizing and directing and last is
decision making.
Financial management a company is managed by the financial managers and financial
teams. There are several different rows that I've been allotted to a financial manager of an
organization and the major responsibility they hold is to distribute all the financial resources
of the company in the most prominent manner and long with investing it in the right way
towards the right cause and in the right time for gaining the most efficient returns (Barr and
McClellan, 2018).
When it comes to identifying the main objective or primary focus of financial
management team within a company some of the major factors which are considered are as
follows:
 Profit maximization
 Improved efficiency and effectiveness of the brand
 Balanced financial structure
 Business sustainability and survival in the market
 Proper allocation and mobilization of financial resources
 Effective investment as well as spending decisions
 Increasing long term profitability of the entity
Section 2: Description and discussion of the main financial statements and explain the
use of ratios in financial management
Financial management includes development of number of financial statements that
are necessary for a company to develop in order to understand its financial position as well as
its short and long-term survival in the market. But financial management is not only useful
In developing effective business reports. It supports the organization and top level
management in making appropriate decisions for future as well as present. The
resources which helps a business organization and management in developing appropriate
decisions and proceeding towards the success of the company in the most prominent manner
are the financial resources which are also called as financial statements.
There are several different types of financial statements that are developed by
businesses in order to make appropriate decisions and to seek a good picture of what is the
current position of the company in the market in financial terms. Some of the financial
statements that are developed and used by businesses in today’s world are as follows:
 Income statement which is also known as profit and loss account.
 Balance sheet which is also stated as a financial position of a company.
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 Cash flow statement.
 Ratio and trend analysis.
 Budgets.
 Working notes.
The above mentioned statements are important for businesses to develop as these are
the part of their business report. All these listed accounts and financial statements helps a
business in conducting a thorough evaluation of their current performance and compare it
with the past as well as future projects in order to make appropriate decisions and move for
the in the best possible manner available to them. Moving along these financial statements
not only help the entity in developing appropriate decisions but it also allows them to to work
towards the growth of the entity as they provide a concise picture to the management and
experts working with their organization about how the need to proceed in order to kill the
most of their resources and use them in the most productive as a sustainable manner for the
purpose of attaining organizational objectives and agenda (Kembauw and et. al., 2020).
Section 3: Using the template provided:
v. Completing the Information on the ‘Business Review Template (Ensure that you display
your calculations for this detail)
Net profit margin = 43057 / 189711 * 100
= 22.69%
Gross profit margin= 81125 / 189711 * 100
= 42.76%
Current ratio = Current assets / current liabilities
= 54349 / 37928
= 2.22:1
Quick ratio = (Current assets – inventory) / current liabilities
= (84349 – 28571) / 37928
= 1.47: 1
The Company’s key financial and other performance indicators during the year were as
follows:
2016 20
15
Change
£’000 £’000 %
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Turnover (continuing operations) 1,89,711 1,79,58
7
5.60
%
Profit for the financial year 43057 18,987
126.7%
Shareholder’s equity 83802 63,057 32.90
%
Current assets as % of current liabilitie
s
222% 30
4%
-
82%
Customer satisfaction 4.5 4
.1
10
%
Average number of employees 649 61
8
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
years contribution in 2016.
vi. Using Excel producing an Income Statement for the Sample Organisation (see Case
Study)
Turnover 3 1,89,71
1
Less cost of sales:
Material Cost 42,597
Production Cost 15,231
Labour Cost 50,758
1,08,58
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Gross profit 81,125 GP % 42.8
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=
Less Expenses:
Administrative expenses 13,751
Other operating overheads 22,374
Interest 1,943
Total Overheads 4 38068
Profit/(loss) for the financial
year
43057 NP%= 22.7
vii. Using Excel completing the Balance Sheet
2016
Total
£0
Non Current assets
Intangible assets 5,793
Tangible assets 52,812
Investments 10,693
69,298
Current assets
Stocks 28,571
Trade debtors 26,367
Short term deposits 14,779
Cash at bank and in hand 14,632
84,349
Current liabilities
Bank loans and overdrafts 9,610
Trade creditors 19,493
Other Creditors 678
Income tax payable 3,585
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Other creditors including tax and social
security
4,562
37,928
working capital 46,421
Total assets less current liabilities 1,15,719
Non Current Liabilities
Bank loans and overdrafts 16,506
Other Liabilities 7,304
23,810
Provisions for liabilities 8,094
Net assets 83,815
Capital and reserves
Called up share capital 39,436
Reserves 1322
Retained earnings 43,057
Total equity 83,802
viii. Using the Case study information describing the profitability, liquidity and
efficiency of the company based on the results of ratio analysis
Section 4: Using examples from the case study describing and discussing the processes
this business might use to improve their financial performance.
From the analysis and evaluation conducted above in the report their income statement and
balance sheet of a company is developed as well as ratio analysis also conducted, there are certain
suggestions that are necessary for the company to employee within it in order to improve their
financial performance and capitalize more financial resources. These recommendations are as
follows:
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 The company needs to over there costs incurred on a regular basis and identify more
options which are two stainable as well as productive. Simple house The entity have to
work over reducing their cost and improving their productivity in order to retain more
profits within the organization and reduced their expenses (Shapiro and Hanouna, 2019).
 Another example on which the company needs to focus in order to improve their financial
performance is looking over less costly financial resources and changing their financial
assets into more productive. The company needs to make a better investment decisions and
work towards the development of the company.
 The financial manager of the organization needs to bring up to more constructive and
valuable investing options in front of the board in order to allow them to have a productive
and high return generating investment. This is important the organization have better
investments in order to allow them to improve their financial statements and performance
(Titman and Keown, 2018).
Conclusion
From the report above and analysis conducted in it, clearly represented that financial
management is a key department in an organization. Financial management is a department
of a company which allows than to get hold of their financial resources and make appropriate
decisions so that which companies assets can be used in the most productive and efficient
manner allowing it to have the liberty of using the best financial resources. In the report
above an income statement, balance sheet and trend analysis is conducted which showcases
the fall and fluctuations taking place within the companies financial performance. At the end
of the report some recommendations are mentioned for the company which will allow it to
improvise in future and grow by increasing its performance.
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References
Books and Journals
Ameliawati, M. and Setiyani, R., 2018. The influence of financial attitude, financial
socialization, and financial experience to financial management behavior with
financial literacy as the mediation variable. KnE Social Sciences, pp.811-832.
Barr, M. J. and McClellan, G. S., 2018. Budgets and financial management in higher
education. John Wiley & Sons.
Block, S. B., Hirt, G. A. and Danielsen, B. R., 2018. Foundations of financial management.
McGraw-Hill Education.
Brigham, E. F. and Houston, J. F., 2021. Fundamentals of financial management. Cengage
Learning.
Kembauw, E. and et. al., 2020. Strategies of Financial Management Quality Control in
Business. TEST Engineering & Management, 82, pp.16256-16266.
Sazonov, S. and et. al, 2017. Theory and methodology of the financial management of the
regional supporting university. J. Advanced Res. L. & Econ., 8, p.211.
Shapiro, A. C. and Hanouna, P., 2019. Multinational financial management. John Wiley &
Sons.
Siminica, M., Motoi, A. G. and Dumitru, A., 2017. Financial management as component of
tactical management. Polish Journal of Management Studies, 15.
Titman, S. and Keown, A. J., 2018. Financial management: Principles and applications.
Pearson Education, Inc..
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Appendix:
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