Financial Management: Statement Analysis and Improvement Processes

This report provides a comprehensive overview of financial management, emphasizing its importance in business strategy, decision-making, and control. It defines financial management and explores its role in financial planning, fund protection, resource allocation, investment opportunities, and financial decision-making. The report also describes key financial statements, including the balance sheet, income statement, and cash flow statement, and explains the use of profitability, efficiency, and liquidity ratios in assessing a company's financial health. Furthermore, it suggests processes for businesses to improve their financial performance, such as managing expenses, adjusting pricing strategies, monitoring credit periods, and exploring investment opportunities. The analysis underscores the significance of financial management in enhancing long-term profitability and stakeholder value.

Applied Business
Finance
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Table of Contents
Introduction................................................................................................................................3
Task 1: Definition of financial management and its importance..........................................3
Task 2: Description of financial statements and use of ratios in context of financial
management .........................................................................................................................4
Section 3: Using the template provided: ..............................................................................5
Income Statement for Organisation ....................................................................................6
Using Excel completing the Balance Sheet............................................................................6
describing profitability, liquidity as well as efficiency of company depend results of ratio
analysis..................................................................................................................................6
Task 4: Describing processes this business might use to improve their financial
performance. ..............................................................................................................8
Conclusion..................................................................................................................................9
References .......................................................................................................................10
Appendix:.................................................................................................................................11
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Introduction
Financial management can be described as an area as well as function in an
organisation that is related to profitability expenses, credit and cash that allow
organisation to carry out their objectives in order to get satisfactory results (Ahmed
and Safdar, 2018). This project report includes discussion of financial management
and its importance. It also includes discussion of different financial statement and
also explain use of ratio in financial management. Moreover, it also consist use of
process in this business in order to improve financial performance.
Task 1: Definition of financial management and its importance
Financial management can be described as planning, directing, organizing as well as
controlling of financial activities like procurement, utilization of funds of business. It is
including application of principle of general management to financial resources of
company. It is a practice that is used to develop business plan and also ensure that
cost of different department is in under budget of company. It allow CFO and VP of
company to provide proper data that provide support to vision, of company, allow
them to make informed decision about where they needs to invest. How find are
utilized (Aviantara, 2021). It allow business to develop various strategy to business
also assist them for attainment of long term and short term goals. It allow leader to
company to measure current performance of company and also helps them to
understand where they needs to make improvement.
Importance of financial management:
Financial management is important for business for various reason as it allow them
for purpose of making strategy for business, making important decisions, controlling
different business activities and others. Explanation of importance of financial
management for business is mentioned below:
Financial planning: Financial management is essential for business for financial
planning. It allow them to decides financial necessity along with business concern.
Financial planning is linked with identification of right measure to business in place of
worries in financial management cycle of organization (Beck, Glendening and Hogan,
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2021). It is important for business as it is linked with concern of business. Success of
a business is depended on financial planning of organization.
Protecting funds: Financial management is one of important concept that is used
for protecting finance of business that is required in order to attain business goals.
For this, a person needs to measure areas where funds needs to allocate and where
fund is required. It ensure smooth function of business in different areas.
overspending on a project create impact over other business operation as it results
in lack of finance in business (Cheng, Kao and Lin, 2021). It is important for business
as it allow them to safeguard and saves funds of business. Financial management
allow company to invest funds wisely that create benefit for company.
Allocation of funds: Financial management is important for business as it helps in
allocation of funds in appropriate manner. It allow business to make proper use of
finance and also use it in order to increase operational proficiency of business. It
allow financial specialist to make proper use of finance and also control expense of
business. It allow them to allocate funds in manner that allow them to utilise finance
in appropriate manner and invest remaining funds to increase return.
Investment opportunity: Financial management allow business to manage finance
in appropriate manner and also saves money on different activities. It will allow them
to saves money in business and helps them to invest in other activities (Craja, Kim,
and Lessmann, 2020). These investment opportunity allow business to create wealth
for business and also allow them to explore new business opportunities. Investment
should be made by business on basis of risk and return analysis.
Financial decision: Financial management also allow business to make financial
decisions. It allow business to make financial choices and also make comparison
that allow them to make valid choices. If business is taking wrong financial decision,
it will create problem for them and also results in financial loss. Wrong choices of
business crate impact of business operation and also create relationship among
different department like human resource, marketing, operation and others.
Task 2: Description of financial statements and use of ratios in
context of financial management
Financial statement can be described as written records that is used by business for
conveying business activities as well as financial performance of company. It is
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audited through government agencies, firms, agencies and other in order to ensure
accuracy, financial as well investing purpose. Financial statement includes balance
sheet, income statement, cash flow statement and others. Explanation of these
financial statement is mentioned below:
Balance sheet: It is a financial statement that provide overview of assets, liability,
stakeholder equity of company at one time. It consist assets, ability as well as equity
of stakeholder (Durocher and Fortin, 2021). Assets can be described as owned value
of company. It can be sold or used by an organisation in order to develop a product
or service that can be sold anywhere. Assets is also described as physical property
like inventory, plants, truck and other things. Liabilities can be described amount of
money which own by a company to others. It includes different obligations like
borrowed money from bank for launching new product, money owner to suppliers
and others. Shareholder's equity is also called capital that is a money that is left by
company after selling of their assets and paying off their liabilities.
Income statements: It is a report that is reflect different ways in which money is
earned by company for specific period. It is also shows different cost and expense
linked with revenue. It consist total revenue as well as sales for specific period. It
also consist different expenses and cost of operating business. It also subtract
expenses from revenue in order to attain income and profit for specific period.
Cash Flow statement: It is a statement which measure ways in which company is
generating cash that is paid to debt obligation as well as funds its operating
expenses. It is a statement that consist both inflow as well as outflow of cash (Gupta
and Mehta, 2021). It is essential for a company as it is important for an organisation to
have enough cash in hand in order to pay their expenses as well as for purchase
assets. It provide explanation to company about whether company is able to
generate enough cash to meet requirement of company.
Section 3: Using the template provided:
i. Completing Information on ‘Business Review
Net profit of company for the year 2016 includes £43,057,000 and in the year
2015 £18,987,000. key financial as well as other performance indicated of company during
the year is mentioned below:
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Turnover of company is increased with 5.6% during this year. It can be due to
acquisition of extinguishers business in the year 2015 that is also making
contribution in the year 2016.
Income Statement for Organisation
Covered in appendix
Using Excel completing the Balance Sheet
mentioned in appendix
describing profitability, liquidity as well as efficiency of company
depend results of ratio analysis
Profitability ratios: It can be described as fiscal tool which can be used by financial analyst as
well as investor that allow them to measure, evaluate efficient of a business for generating
profit for stakeholders (Habib, Hasan and Al‐Hadi, 2020). Calculation of profitability ratio of
the year 2016 is mentioned below:
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From above mentioned data , it can be interpreted that business is earning higher profit in
the year 2016 that is analysed on basis of profitability as well as earning capabilities of
organisation.
Efficiency ratio: It is a ratio that is also known as activity ratio. It is a ratio that is used for
purpose of examination of ability of company for effectively employing funds in form of
capital fixed assets (Khazaei, 2019). Direction affiliation is made among profitability as well
profitability ratio as if company is doing their work with full efficiency that it will provide
them more productivity. It will also allow business to get more return from their account.
Calculation of this ratio is mentioned below:
From above mentioned data, it is interpreted that current assets of company is twice in
compare to current liabilities that explains that company has capability of repay arrears on
time and also provide them insolvency.
Liquidity ratio: Liquidity ratio is also known as monetary ratio that assist business for
purpose of identifying ability of organisation to repay their short term debt obligation on
time. This ratio is giving best result when it is more than 1 that describe that company is
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able to pay their current expenses (Nindito, 2018). In this situation, stakeholders as well as
other creditors are ready to invest money in this as their funds are safe. Calculation of these
ratio is mentioned below:
From above mentioned data, it can be interpreted that company has proper liquidity
in order to meet short term commitment of business that arise during the financial
year. It also allow them to make payment to creditor that will increase their
creditability.
Task 4: Describing processes this business might use to improve
their financial performance.
It is important for business to improve their financial performance as it helps them to
overcome of expenses and provide them profitability. Improve financial position allow
business to repay their debt on time that is important in order to improve
performance for long term. In order to increase profitability, it is also important for
them to rearrange operation expenses of organisation. It can be done through
deferring payment of large expenses that is important for purpose of dividing profit
evenly throughout accounting year (Wang, Yu and Gao, 2021). In order to increase
profit of business. It ls also important for them to increase prices of products as well
as service that allow them to match cost that is important for fast growth. It is also
important fro business to monitor credit period that allow them to deal with long term
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credit effectively. It is also important for organisation to find out different funds in
financial market and allow them to receive interest income for improving profitability
of business. On basis of these suggestion, organisation can improve financial
performance of company for long term that allow them to increase wealth of investor
as well as other stakeholders that is important in order to increase value of
business.
Conclusion
From above mentioned discussion, it can be concluded that financial management is
one of important component for business that allow them to manage financial
performance of company for long term. It is also important tool that allow them to
make their organisation more profitable. It is important for purpose of ensuring
financial planning and also manage funds of business in effective manner. There are
different types of financial statement which is used by companies in order to
measure its financial performance. These statement includes balance sheet, cash
flow and others. There are also different types of financial ratio which are also
important for business to identify at which place they needs improvement. There are
different types of ratio including profitability, efficiency as well as liquidity ratio in
business that are important for purpose of measuring financial performance of
company.
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References
Books and Journal
Ahmed, A.S. and Safdar, I., 2018. Dissecting stock price momentum using financial
statement analysis. Accounting & Finance, 58, pp.3-43.
Aviantara, R., 2021. Scoring the financial distress and the financial statement fraud of
Garuda Indonesia with «DDCC» as the financial solutions. Journal of Modelling in
Management.
Beck, M., Glendening, M. and Hogan, C.E., 2021. Financial Statement Disaggregation and
Auditor Effort. AUDITING: A Journal of Practice & Theory.
Cheng, C.H., Kao, Y.F. and Lin, H.P., 2021. A financial statement fraud model based on
synthesized attribute selection and a dataset with missing values and imbalanced
classes. Applied Soft Computing, 108, p.107487.
Craja, P., Kim, A. and Lessmann, S., 2020. Deep learning for detecting financial statement
fraud. Decision Support Systems, 139, p.113421.
Durocher, S. and Fortin, A., 2021. Financial statement users’ institutional logic. Journal of
Accounting and Public Policy, 40(2), p.106819.
Gupta, S. and Mehta, S.K., 2021. Data mining-based financial statement fraud detection:
Systematic literature review and meta-analysis to estimate data sample mapping of
fraudulent companies against non-fraudulent companies. Global Business Review,
p.0972150920984857.
Habib, A., Hasan, M.M. and Al‐Hadi, A., 2020. Financial statement comparability and
Idiosyncratic return volatility. International Review of Finance, 20(2), pp.383-413.
Khazaei, M., 2019. Impacts of Management Ability on of Financial Statement
Comparability. Journal of Knowledge Accounting, 10(2), pp.21-42.
Nindito, M., 2018. Financial statement fraud: Perspective of the Pentagon Fraud model in
Indonesia. Academy of Accounting and Financial Studies Journal, 22(3), pp.1-9.
Wang, Y., Yu, M. and Gao, S., 2021. Gender diversity and financial statement fraud. Journal
of Accounting and Public Policy, p.106903.
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Appendix:
Income Statement
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