Importance of Financial Management: Concept, Financial Statements, Ratios, and Strategies

This report discusses the importance and concept of financial management, financial statements, utilization of ratios, and strategies to improve financial performance. It covers the significance of long-term stability, estimation of funds required, decision-making, and profitability. The report also explains the importance of financial information, solvency, and evaluation of risks. It includes a business review template, income statement, balance sheet, and fiscal ratios. The report concludes with strategies to improve financial performance.

Importance of
Financial
Management

Contents
INTRODUCTION......................................................................................................................3
MAIN BODY.............................................................................................................................3
SECTION 1................................................................................................................................3
Briefly discuss about the importance and concept of the financial management..................3
SECTION 2................................................................................................................................4
Critically discusses the financial statements and clarify the utilization of ratios in financial
management...........................................................................................................................4
SECTION 3................................................................................................................................5
(i) Complete the Business Review Template.........................................................................5
(ii) Complete the Income Statement using the Template in Excel.........................................6
(iii) Complete the Balance Sheet using Excel........................................................................6
(iv) Calculate the fiscal ratios................................................................................................6
SECTION 4................................................................................................................................8
Using instances from the case study, describe and discuss the strategies that this company
could employ to improve its financial performance..............................................................8
CONCLUSION..........................................................................................................................8
REFERENCES.........................................................................................................................10
APPENDIX..............................................................................................................................11

INTRODUCTION
The amount of money known as financing is needed to carry out the day-to-day
running of a company. All activities that must be carried out in the company in order to
achieve the goals are carried out with funding (Eravcı, 2021). The report introduces the
importance and concepts of financial management by assisting the use of tax ratios in
business decision making. Furthermore, the income statement is completed using the balance
sheet. Then the various key figures such as productivity, efficiency and liquidity key figures
were calculated and the analysis was carried out on the basis of the results. In addition, an
analysis was done to improve the company's performance for its development in the end.
MAIN BODY
SECTION 1
Briefly discuss about the importance and concept of the financial management.
The term financial management refers to the term of effectively and efficiently
managing the business resources, assets, and liabilities of the organization. It helps in
increasing the stability and income of the company. The concept of financial management is
used to monitor and control expenses, costs and maximizing income to keep the business
running smoothly over the long term.
Importance of financial management:
1. Long-term stability: It helps the company to ensure sustainability in the long term. As
it monitors and verifies the profit and the apportionment of costs and use of funds,
which helps to minimize idle expenses. It also guarantees this by fulfilling the daily
activities at the right time and making the company valuable for its conduct of its
activities. This gives the company a long service life and its development.
2. Estimation of Funds Required: Finance managers need to assess a company's capital
needs to do business. This is heavily influenced by the company's financial policy in
terms of expected profits and expenses. The overall valuation of capital should be
done in such a way as to increase the company's capital earning capacity (Beazley,
2019).
3. Decision - making: It assessed the expense by setting up the budget, through which it
take the choice by basically assessment the monetary condition of the organization. It
is an exceptionally essential component of any business, as all the choice which are

had will affect the position and the usefulness of the association is the individual
influences digger the decision is made.
4. Profitability: The branch of money deals with the entire bookkeeping of the
association and guarantees that it is overseen reasonably and precisely. It will help in
expanding the new open doors for the firm and along these lines likewise raises its
proficiency and efficiency.
SECTION 2
Critically discusses the financial statements and clarify the utilization of ratios in financial
management.
The fiscal summary is a bunch of cases that each public firm makes to archive the
monetary and financial information of the organization. It is basic for each business to keep it
all ready. It gives an outline of the organization's monetary circumstance and present status
(Engel and et.al., 2018). The financial statements are:
1. Statement of Financial Position: It is also termed as Balance Sheet. It is separated
into two segments: resources and liabilities. These are regularly made at the finish of
the yearly year to decide the organization's monetary wellbeing. Fixed, current, and
non-current resources, which include stock, intangible assets, machinery, and
investments make up the assets side of the accounting report. The non-current and
current commitments in liabilities are the creditors. The banks, or bills payable, are
the non-current and current commitments under liabilities. Liabilities additionally
incorporate the money of investors, acquiring, and long haul advances. It supports
deciding if the association is equipped for gaining new undertakings. It additionally
determined the credit hazard that could emerge from its resources later on.
2. Income Statement: It is an important part of the organisation. Several accounting
records as a result of this. It shows the company's net profit for the company of
meeting its objectives. The many sorts of non-operating and working revenue and
expenses are determined by this. These factors are used to calculate profit. These are
normally prepared over a year; however, business policies may need an interim
statement. It displays the company's profitability by deducting all expenses from
revenue. It's also useful for calculating financial ratios (Apte and Kapshe, 2020).
3. Cash Flow Statement: This is where the business's outlay of funds are decided. It can
be calculated by categorising all expenses into three categories: operational, financial,

and investing. The operating activities cover the funds generated for the business's
normal activities. Investing operations include the acquisition and sale of assets, and
the investing and recovery of a mortgage for the aim of earning cash. The financing
activities include the capital invested in the firm and the dividends paid or received
transactions.
Uses of Financial Information:
 Source of Information: It is necessary when presenting financial statements to
stakeholders since it helps them understand large and complex financial statistics.
Investors find it difficult to compare data at times, but measures help users understand
the present performance of the business thus that they could continue to invest in its
operations (Bahrami and et.al., 2020).
 Solvency: The stability, acid test, fast ratio, and other indicators, including whether
the business is willing to pay its obligations within a fiscal quarter, all contribute to a
company's ability to repay its existing financial commitments. The payment cycle of a
business is routinely assessed using ratios in order to improve it so its credit
worthiness increases.
 Evaluation of risks: An organisation that operates in a number of different business
segments and industries, some of which are risky. Ratios can be used to examine risk
and its many categories, and corrective measures can be made to reduce it. The debt-
to-equity and debt-to-coverage ratios illustrate how reliant a business is on external
capital and its ability to return it on time (Bagheri Azghandi, Hesarzadeh and
Abbaszadeh, 2018).
SECTION 3

(i) Complete the Business Review Template.
(ii) Complete the Income Statement using the Template in Excel.
Shown in Appendix.
(iii) Complete the Balance Sheet using Excel.

(iv) Calculate the fiscal ratios.
1. Profitability Ratios: It aids in the calculation of a company's profits at the close of
the financial year. This income might come from a variety of sources, including
investing, regular business activity, stock earnings, and so on. In other words, it
determines how much money it can make from its earnings (McCosker, 2021).
Results: It may be observed from the results above that company profitability is
increasing. In comparison to the previous year, the company's gross margin has decreased by
the minute. But from the other note, the firm's net income was quite little in 2015, but
revenue increased dramatically in 2016. The reason for this growth is that the corporation has
kept its indirect spending under close control. This indicates that the company is working
hard to enhance its profitability index.
2. Liquidity Ratio: These indicators are used to assess a firm's ability to satisfy short-
term obligations with present assets. This ratio is particularly beneficial for creditors
in determining whether or not they should issue available credit to the company and to
what amount (Gao and Han, 2021).
Results: The corporation has a strong liquidity position. Considering the current
situation, the corporation has enough short-term assets to repay its commitments twice.
Although it is unwilling sell its stock, it will have sufficient assets to pay off its outstanding
debt. There is enough money left over after the payment for day-to-day operations.
3. Efficiency Ratios: It assesses a company's capacity to create profit from its assets. It
also keeps track of how long this can turn its head (Thompson and Morgan, 2020).

Results: It can be stated that the debtor and creditor turnover rate is appropriate in this
situation. There is adequate time for the corporation to pay it back and collect money in
between. That also is, it is capable of paying its debtors promptly. The inventory turnover rate
of a company cannot be determined without making comparisons to those of another
company or past findings from the same company. It takes around three months to clear all of
the goods, which is a reasonable amount of time.
SECTION 4
Using instances from the case study, describe and discuss the strategies that this company
could employ to improve its financial performance.
With above ratios are used to evaluate the financial productivity of a business. This
information can be used by investors to make decisions and select investments growth in
earnings, solvency, and efficacy. It assists the organization since it allows it to plan and
manage by forecasting the company's expected positon of economic issues. As a result,
estimating proportions and analysing the company's financial health are crucial. Maximizing
wealth is important since it ensures the strategic and long survival, which is determined by its
revenues.
Completing a company's need is indeed a measure that can be used to improve the
performance of the company. This can be accomplished through the use of advertising
methods and the study of management practises. It focuses on ratio analysis, which aids in
analysing a company's financial status, valuation, and liquidity (Magni, 2020).
In order to acquire more clients, it focuses on enhancing its public relations methods.
It will increase its client base as well as generate revenue. On the other side, this will result in
the project's earnings being depleted. As a result of the responsibility in progressiveness, this
will have an impact on the firm's assets.
The department of finance's decisions are crucial in defining the association's
financial viability. All expenses should be apparent from all aspects and decomposed to
decide whether or not they are justified.

CONCLUSION
As the preceding report summarises, financial reporting is a fundamental and highly
important element of any commercial organisation. It will aid management in properly
providing funding to areas that will benefit the organization's growth and expansion. The
concept of financial management has demonstrated that it is mostly used in making key
decisions. It will aid in forecasting company circumstances and planning for any potential
organisational crises. In addition, finance ratios are developed, that will aid in evaluating the
financial health of the company and allowing for comparison analysis. In addition,
performance-enhancing strategies are offered.

REFERENCES
Books and Journals
Apte, P.G. and Kapshe, S., 2020. International Financial Management|. McGraw-Hill
Education.
Bagheri Azghandi, A., Hesarzadeh, R. and Abbaszadeh, M.R., 2018. Readability of Financial
Statements and the Sensitivity of Investors to Use of Accounting
Information. ـJournal of Financial Management Perspective. 8(23). pp.87-103.
Bahrami, A. and et.al., 2020. Forecasting the Financial Statements Fraud Detection of
Companies Listed on the Stock Exchange. Empirical Studies in Financial
Accounting. 17(65). pp.35-59.
Beazley, I., 2019. Financial Management in Government: Insights on Skills
Development. OECD Journal on Budgeting. 18(3).
Engel, L. and et.al., 2018. Systematic review of measurement property evidence for 8
financial management instruments in populations with acquired cognitive
impairment. Archives of physical medicine and rehabilitation. 99(9). pp.1848-1875.
Eravcı, A., 2021. The Need and Importance of Financial Innovation in City Marketing.
In Management Strategies to Survive in a Competitive Environment (pp. 215-232).
Springer, Cham.
Gao, Y. and Han, L., 2021. Implications of Artificial Intelligence on the Objectives of
Auditing Financial Statements and Ways to Achieve Them. Microprocessors and
Microsystems. p.104036.
Magni, C.A., 2020. Financial Statements. In Investment Decisions and the Logic of
Valuation. (pp. 83-158). Springer, Cham.
McCosker, P., 2021. Interpretation of Financial Statements. In Financial and Managerial
Aspects in Human Resource Management: A Practical Guide. Emerald Publishing
Limited.
Thompson, J. and Morgan, G.G., 2020. Conferred ownership: approval of financial
statements by small charities. Qualitative Research in Accounting & Management.

APPENDIX