Financial Management and Utilization of Ratios in Business Review Template

This article explains the importance of financial management in an organization and the utilization of financial statements and ratios. It also provides insights on how to improve the financial performance of a company. The article includes a business review template and calculations of financial statements.

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TABLE OF CONTENT
Section 1...........................................................................................................................................3
INTRODUCTION ..........................................................................................................................3
Section 2...........................................................................................................................................3
Financial statements and utilization of ratios in financial management......................................3
Section 3...........................................................................................................................................6
Calculation of financial information in the business review template.........................................6
Section 4...........................................................................................................................................8
Way of improving financial performance of a company.............................................................8
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10
Appendix........................................................................................................................................11
Balance sheet.............................................................................................................................11
Profitability, liquidity and efficiency ratios...............................................................................12

Section 1
INTRODUCTION
Financial management is an activity in the organization which helps the business to plan
and process the organization of control and monitorization of the financial resources. It helps the
company with achievement of its goals and objectives. It is considered to be the idea practice for
the controlling the financial activities of the organization. The procurement of the funds,
utilization of funds, accounting, payments and risk assessment all are the things which are related
to the financial management of the organization (Brigham and Houston, 2021). Financial
management is considered as the application of the general principles of management for the
financial possession of the enterprises. Financial management is very important for an
organization in many ways. As it includes the application of the management principles the
financial assets of the organization also plays and important role in the fiscal management. It is
considered to be an aspect which is very crucial in the organization for its financial planning.
The financial management of the organization helps the business in the planning and acquisition
of the funds. It is also very essential in the effective utilization of allocation and the receiving
and acquiring of funds. With the help of this organization is also able to fulfil its profitability.

Section 2
Financial statements and utilization of ratios in financial management
Financial statements are the written records which convey the business activities and also
the financial performance of the company. These statements are used for the audit purposes by
the government agencies, accountants and firms. This allows them to ensure accuracy for the tax,
financing and investing purposes. Financial statements are the balance sheet, income statements
and cash flow statements. Balance sheets is an overview of the assets and the liabilities of the
organization which provides a snapshot of the stockholders, equity for a given period. Income
statements provides the overview of the company's revenue and expenses during a particular
period. Subtracting the expenses from the revenue in the income statement the business is able to
calculate its profit figure known as the net income (ones and et.al.,2018). Cash flow statement
helps in the measurement of the total generated cash by the company which is to be paid towards
its debt obligations, fund investment and operating expenses.
Balance sheet :
Balance sheet is the overview of the company's assets and liabilities towards the
stockholder's equity in a snapshot. As a financial statement the balance sheet provides the date
for which it tells the company about the overview. The identification of the balance sheets totals
for the preparation of the financial statement is done in the following ways,
 It is important for the preparation of balance sheet to locate the total assets for the given
period.
 The total of all the liabilities should also be separated and listed differently in the balance
sheet it may or may not include contingent liabilities.
 It is essential to locate all the shareholder's equity and add the number to the total of the
liabilities.
 The most important fact about the balance sheet is that the total assets must be equal to
the total liabilities (Grafova and et.al.,., 2017).
Some limitations of Balance sheet are that it records only the historical data due to which
it does not explain the future financial position of the organization. Apart from utilization of
historical data it also provides the estimation of the omission of the value of the non-monetary
assets. Balance sheet omits the valuable non-monetary assets of the organization and has no
method for measuring the impact of such assets.

Income statement :
An income statement is one of the three most important statement which are used for
reporting of the company's financial statements and performance which allows the company with
the financial analysis of a given financial year. Another name for income statement is the profit
and loss statement as it provides the statement to the revenue and the expenses of the company
for a given period. The importance of income statement for an organization are,
 It provides frequents reports as the income statement is generated for either quarterly or
monthly basis.
 With the help of an income statement the business is able to point out the statement for
highlighting the future expenses.
 Income statement is considered to be the most effective as it provides an overall analysis
of the company and its performance.
Following are the limitations to the income statement,
 The expenses incurred as depreciation are not reflected as the true cost of the company.
 In the income statement there are certain assumptions which are made which creates lack
of accuracy.
Cash Flow statement
Cash flow statement is the financial statement which is prepared or the analysation of the
all the cash inflows and outflows of the organization. This statement summarizes all the amount
of cash and cash equivalents before entering and leaving a company (Mitchell and Calabrese,
2019). Cash flow statement is used for measuring how well the company is able to manage the
cash position, explaining how well the company is able to generate the cash which is required for
paying of the debt obligation of the operating expenses of the business. The operating activities
in the cash flow statement includes the following,
 It is said to be the receipts which are received from the sales of the goods and the
services.
 The payments which are made by cash are for the good and services production of the
organization.
 The cash flow statement are important for the investors to use them as the information
about the historical cash flow of the company which can provide projects for the future
cash flow and company can make decision on their basis.

 Cash flows statement are used for showing the changes in the balance sheet as it helps the
business with the analysis of the operating and investing financial activities (Titman and
Keown, 2018).
Limitations of cash flow statements are,
 It fails to present the net income of the company as it is considered as the non cash items
as well.
 Cash flow statement is also not capable enough to solve the position of the failed
liquidity and also not able to assess the solvency position of the firm.
 It cannot be used as a substitute of fund flow or income statement.
 It is also not able to predict or assess the future cash flows for analysation of the financial
position.
Financial Ratio analysis is used in the financial management as a tool which helps the
business improve its understanding of the financial results and trends for the given time period
(Finkler, Smith and Calabrese, 2018). It helps the organization by providing key indicators to
the performance of the organization. Manager like utilizing the ratio analysis for pinpoint
strengths and weaknesses from the strategies and initiatives which can be formed. The ratio
analysis is said to be useful for the financial management of the organization,
 The calculations of the ratios are said to be very reliable as it reflects the true cost picture
of the financial performance (Illmeyer and et.al.,2017).
 Ratio analysis as a method is said to be calculated with consistency by providing period
to period calculation.
 It is utilized by the organization for creating a comparison between the internal
benchmarks and goals of the organization.
 It is used for the comparison of the company's performance with its competitors.
 Ratio analysis is carefully interpreted in the proper context for figuring out the many
important factors which can indicate the business assessment of its performance.
Section 3
Calculation of financial information in the business review template
In 2016 the Net Profit has been calculated at £43057 which in the year 2015 was £18,987,000.
Some of the key financial and other performance in these years are given as follows,

2016
£’000
2015
£’000
Percentag
e change
Turnover (continuing operations) 189,711 179,587 +5.6%
Profit for the financial year 43057 18,987 + 27.3 %
Shareholder’s equity 83815 63,057 +32.9%
Current assets as % of current liabilities 222.3 % 304% -82%
Customer satisfaction 4.5 4.1 +10%
Average number of employees 649 618 +5%
In the chosen year the operations are said to be increased by 5.6% during the year of in
which the primary due to the extinguishers of business on 1st May 2015 the contribution to which
was made in total in 2016.
The total Gross Profit amounted to £81125
The calculated Net Profit for the year is £43057
In this year the Net Profit was increased with 27.3 % during the year 2016.
As a result of the which the Shareholders’ equity increased by 32.9% by £20758.
By dividing the current assets excluding the stocks with the current liabilities the quick ration of
the given scenario has been calculated at 1.47
With the division of the total current assets with the current liabilities the current ration of the
given scenario has been calculated at 2.22
Income statement
Profitability ratio :
Profitability ratio assess the company's ability for earning profit from the sales and
operations. It also explains how efficient a company is in the generation of profit and value of
shareholders. The profitability ratio in 2016 of the given scenario is 22.69% due to which is
higher in comparison to the 2015 profitability ratio which was only 10%..
Liquidity ratio :

Liquidity ratio is the measurement of the company's ability to pay the debt obligations
and its margin of safety through the calculation of the metrics including the current ratio. It is
considered to be very important as it helps the business to determine the debtor's ability to pay
off obligation without raising of any external capital (Accounting ratios, 2021). Current ratio and
quick ratio are the examples of the liquidity ratio. In the current scenario in 2016 the current ratio
is 2.22 and the liquidity ratio is 1.47 which in general are considered quite healthy for the
company taken as example.
Efficiency ratio :
Efficiency ratio is the typical used ratio which helps in the analysation of the internal use
of assets and liabilities. With the help of efficiency ratio the firms are able to calculate the
turnover of the receivables, repayment of liabilities and quantity and usage of equity and general
use of inventory and machinery (Loke, 2017). Some examples of efficiency ratios are, accounts
receivable turnover, fixed assets turnover and sales to inventory.
Section 4
Way of improving financial performance of a company
An organization can utilize following ways in which it can improve its financial
performance,
Lowering Expenses :
One of the best ways in which an organization can be able to improve its financial
performance is by analysation of its cash flow and figuring out the expenses which it can reduce.
Proper analysation of the income statement will also provide an overview for understanding the
expenses which can be reduced.
Recovering outstanding payments :
With the help of the balance sheet which has been prepared it can be understood that it
has a lot of debtors which it has not yet recovered from. Recovering the debts is important for the
business to generate revenue and again re utilizing the amount in the future investment.
Selling less utilized or unwanted assets :
Having a less used asset in the organization means that the business is not utilizing its
resources efficiently. This decreases the performance in the business which effects the purpose of
attracting investors as the efficiency ratio of the business is low.
Become more efficient in controlling overheads :

Allowing the business to operate with the most efficient and most energy saving and
therefore the implementation of the behaviour and using the existing equipments of the business
more and more efficiently.
Getting the right funding :
With the help of the correct funding the business is able to analyse the finance of the
business which helps in designing and meeting the different needs of the smaller business. For
analysation of the funds the business should use the fund flow statement in order to understand
proper use of fund flow analysis.
CONCLUSION
With the help of this project it can be concluded that financial management is very
important for the organization as it helps the business to plan, organize and monitor the
organization. In this project the different financial statements are analysed explaining their uses
and importance along with their limitations. In this project the financial ratios and their
utilization in the financial management has been explained. This project also provides the
calculation of the financial statements. This project also explained the process which the business
can use for improving the financial performance.

REFERENCES
Books and Journals
Brigham, E.F. and Houston, J.F., 2021. Fundamentals of financial management: Concise.
Cengage Learning.
Finkler, S.A., Smith, D.L. and Calabrese, T.D., 2018. Financial management for public, health,
and not-for-profit organizations. CQ Press.
Grafova, T.O., and et.al.,., 2017. Tools of financial management of reputational risks.
Illmeyer, M., and et.al.,2017. The impact of financial management on
innovation. Entrepreneurship and Sustainability Issues. 5(1). pp.58-71.
Jones, C., and et.al.,2018. Financial Management for Nurse Managers and Executives-E-Book.
Elsevier Health Sciences.
Loke, Y.J., 2017. The influence of socio-demographic and financial knowledge factors on
financial management practices of Malaysians. International Journal of Business and
Society. 18(1).
Mitchell, G.E. and Calabrese, T.D., 2019. Proverbs of nonprofit financial management. The
American Review of Public Administration. 49(6). pp.649-661.
Titman, S. and Keown, A.J., 2018. Financial management: Principles and applications. Pearson
Education, Inc..
Online
Accounting ratios, 2021.[Online]. Available through: <https://cleartax.in/s/accounting-ratio>

Appendix
Balance sheet
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
Other creditors including tax and social security 4,562

37,928
working capital 46,421
Total assets less current liabilities 115,719
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 83,815

Profitability, liquidity and efficiency ratios
Liquidity ratios
Current ratio 2.22
Current asset/ current liabilities
Current asset 84349
Current liabilities 37928
Quick ratio 1.47
(Current asset- stock)/ current liabilities
Current asset 84349
Stock 28571
Current liabilities 37928
Profitability ratios
Gross profit 42.76
(Gross profit / sales) * 100
GP 81125
Sales 189711
Net profit ratio 22.70

(Net profit / sales)*100
Net profit 43057
Sales 189711
Efficiency ratio
Inventory turnover 3.80
COGS/ inventory
COGS 108586
Inventory 28571
Fixed asset turnover ratio 0.62
Revenue/ total asset
Revenue 43057
Total fixed asset 69298