Importance of Financial Management

Importance of Financial
Management
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Table of Contents

Introduction................................................................................................................................2
Section 01..................................................................................................................................2
Importance of Financial Management....................................................................................2
Section 02..................................................................................................................................4
Financial Statements and Ratios.............................................................................................4
Section 03..................................................................................................................................5
Explanation of the Use of Ratios in Financial Management..................................................5
Business Review Template.....................................................................................................8
Section 04..................................................................................................................................9
Processes to Improve Financial Performance.........................................................................9
Conclusion................................................................................................................................10
Reference..................................................................................................................................10
Appendix..................................................................................................................................11

Introduction
Businesses use money and credit to achieve their goals and objectives, which is known as
business finance or business financing. The ability of a firm to supply goods and services to
customers is dependent on the ability of the company to purchase raw materials. The
purchase of funds with the goal of meeting a company's financial obligations is considered to
be a component of business financing. Both a source of operating capital and a source of
financial diversification, it serves two functions. In this study, the topics of finance and
market value are explored. They also differ in terms of how they are applied in the context of
financial reporting.
Section 01
Importance of Financial Management
Organizations use financial management to control their funding and finance-related
processes. Funds are accessible to satisfy daily business requirements and are used effectively
(Adil & others, 2013). Among the many responsibilities of financial management are making
decisions about investments, purchasing fixed assets, and finding new sources of finance.
Assists in financial operations' planning, organization, and management Decisions on
shareholder returns are also part of this. Using this information, managers are able to make
more educated judgments about the company's benefits, losses, and costs. They can see
where their company's money is being spent, and they can cut down on waste. In order for a
firm to grow, financial management plays a significant role (Moyer, McGuigan & Rao,
2014).
Financial Planning: Financial management helps in the planning of corporate finances.
Other than that, it involves getting ready for things like budgets and money. It helps firms
prepare for difficult scenarios that may develop due to environmental changes. Having a clear
understanding of one's financial situation is important to the success of any company. A
company's costs, expenses, credit lines, and earnings can all be controlled by it (Siekelova &
others, 2017).
Funds: Financial management helps companies to collect finances through less expensive
sources that are suited for the company's requirements. When it comes to running a business,
money is vital. It ensures that a company has the money it needs when it needs it. It's required

for daily operations, acquisitions, debt payments, and raw material purchases.Financing:
Financial management helps a company's manager allocate funds effectively. It gives
businesses insight into how their money is being spent and helps them cut expenses.
Decisions: Financial management helps managers make decisions that have an impact on the
organization's operations. Because every department's activities necessitate monetary support,
financial decisions have ramifications throughout an organization. Achieving long-term goals
is aided by these decisions.
Increase profitability: Financial management ensures effective use of cash to maximize a
company's profitability. Budgeting, cost analysis, and other techniques of cost management
boost firm profitability. This minimizes borrowing costs by encouraging workers to save
(Shapiro & Hanouna, 2019).
Section 02
Financial Statements and Ratios
Using financial statements as a tool, an organization may keep track of its financial health
and progress during the reporting period. Operation and function planning is aided by these
three financial statements:
Income Statement: The income statement is a representation of a company's long-term
success, as well as its productivity and the resources required to get there. There's a profit and
loss account here to show how accurate profits and expenses are for the company. This is a
critical part of evaluating the company's income and expenditures from significant swings in
operating costs, R&D costs, and raw material costs (Kanapickienė & Grundienė, 2015).
Balance Sheet: The balance sheet is an essential aspect of financial statements since it
accurately depicts management's ultimate position. The monetary worth of assets and
obligations, as well as equity, must be equal. According to certain formulae, assets are
equivalent to loans and capital. In a balance sheet, the left and right sides must always be
equal. (Bhargava & Shikha, 2013).
Cash Flow Statements: Cash flow statements are used to examine how much money a
business has taken in and spent over a specific period of time. The operating, investment, and
financing components of this company's finances are represented in this financial statement.