Importance of Financial Management

Importance of financial
management

Table of Contents
Table of Contents.............................................................................................................................2
INTRODUCTION...........................................................................................................................1
SECTION 1.....................................................................................................................................1
Financial Management and its Importance..................................................................................1
SECTION 2.....................................................................................................................................2
Discussing financial statements and use of ratios........................................................................2
SECTION 3.....................................................................................................................................3
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................7
APPENDIX......................................................................................................................................8

INTRODUCTION
Business financing refers to the money and credit that a company uses to achieve its
goals and objectives (Fan and Chatterjee, 2019). Finance is essential for companies to supply
products and service to customers from the purchase of raw material. Business financing
comprises the purchase of funds for the purpose of fulfilling business demand. It provides
funding for the need of business operating capital, and also provides funding diversification.
Financial management and market value are included in this study. The financial statement and
use of the ratio for financial reporting are also different.
SECTION 1
Financial Management and its Importance
Financial management is the method of an organization's financing and finance-related
operations being managed. It ensures that funds are available to meet everyday business needs
and that funds are used efficiently. Financial management entails making decisions on
investments, fixed asset purchases, and funding sources, among other things. It aids in the
planning, organisation, and management of financial operations. It also includes decisions on the
return on investment for shareholders. It provides information on the company's benefit, loss,
and costs, allowing managers to make informed decisions. Managers will be able to see where
their company's cash is being spent and will be able to cut down on waste. Financial
management plays an important role in the growth of a company for the following reasons:
Financial Planning: Financial management aids in corporate financial planning. It
entails preparing for business sources, budgets, and funding requirements, among other things. It
aids businesses in preparing for tough situations that arise as a result of environmental changes.
Financial preparation assists businesses in reaching their defined objectives. It has power over
the firm's costs, expenses, credit, and profits.
Procurement of funds: Financial management aids the company in obtaining funds from
less expensive sources that are appropriate for the company's needs. Funds are essential for a
company's operations to run smoothly. It ensures that funds are available when a company needs
them. It is needed for day-to-day operations, acquisition, debt repayment, and the procurement of
raw materials, among other things (Guironnet, Attuyer and Halbert, 2016).

Utilisation of funds: Financial management aids a company's manager in making the
best use of funds by allocating funds in an efficient manner. It provides information on fund
distribution, allowing businesses to see where their money is going and lowering business costs.
Financial decisions: Financial management aids managers in making financial decisions
that have an impact on the organization's operations. Financial decisions would have an impact
on other departments of a company because any department's activities need funds. These
choices assist the company in achieving its long-term objectives (Zhu and Chou, 2020).
Increase profitability: Financial management aids in the proper use of funds in order to
maximise a company's profitability. It improves business profitability by controlling costs
through budgetary control, cost analysis, and other tools. It also encourages employees to save,
lowering the cost of borrowing money.
SECTION 2
Discussing financial statements and use of ratios
Financial statements are metrics that aid the organisation in conducting the reporting
period and in providing a complete image of the company's financial situation and success
(Wuebker, Baumgarten and Koderisch, 2017). The following are three forms of financial
statements that aid in the preparation of operations and functions:
 Income statements- This statement represents an enterprise's success over time, as well
as the company's productivity and the inputs needed to achieve that result. This is the
profit and loss account, which justifies the company's financial status by displaying
accurate profits and expenditures. This is a crucial aspect of comparing revenues and
expenditures from various fluctuations in operating costs, research and development
costs, and raw material costs that influence the company's results.
 Balance sheet- This is a crucial aspect of financial statements because it depicts the
company's final status by depicting a straightforward and precise image of management.
This includes assets and liabilities, as well as equity expressed in monetary terms, both of
which must be equal at the end of the calculations. Some equations demonstrate that
economic resources represented by assets are equivalent to debts and capital. As a result,
according to the basic concept of Asset = Liabilities, the two sides of a balance sheet
must always be identical (Nyagadza, 2019).