Importance of Financial Management

This document discusses the concept and significance of financial management, types of financial statements, and the use of ratios in financial statements. It also provides recommendations for improving the financial performance of a company. The subject is financial management and the document type is an essay.

Importance of Financial
Management

Table of Contents
INTRODUCTION...........................................................................................................................1
SECTION 1......................................................................................................................................1
Explain and discuss the concept and significance of financial management.........................1
SECTION 2......................................................................................................................................2
Describe the various types of financial statement and analyse the use of ratios in financial
statement.................................................................................................................................2
SECTION 3......................................................................................................................................4
Company's key finance performance indicators:....................................................................4
SECTION 4......................................................................................................................................5
Discuss the which helps in improving the financial performance of the company................5
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Financial management is the aspects of having effective planning organising staffing directing controlling of
the financial resources of the company so that they can be effectively utilised in the various business operations.
It's play a vital role in the management of financial resources as it help the company to understand the important
business aspects in order to perform well in the the current market. It help the company to procure the financial
resources correctly so that the business can have the sufficient add resources in order to run their business.
Financial management are of three types capital budgeting, working capital management and capital structure.
SECTION 1
Explain and discuss the concept and significance of financial management.
Financial management is the division on the area that is responsible for the during an allocation of the
financial resources so that all the business activities project related to cash credit and expenses can be effectively
managed by which the company can attain higher profitability and growth in the large market. There are certain
factors which gives the importance of financial management is explained as follows:
 Calculating the capital required- It is the main function in which required capital for an organisation get
estimated so that business can be run in an smooth manner. Capital of the company is responsible cost
involved in the production of product and service and business structure that they will analyse the amount
of capital in such a way so that can leads to increased the profitability of the company.
 Formation of capital structure- after analysing the amount of capital, what is the significance of step of
formation of capital is being done and the company must analyse debt equity so that they can increase
their internal and external capital funds.
 Allocation of profits- when the firm has generated the amount of profits and they must ensure that
financial resources will be allocated in an effective manner so that they can be effectively utilised. Profit
the art of ratio which is being equally divided among their shareholders.
 Effective management of money- there are various departments change responsible monetary aspects
which includes the payment of raw material and machines and stocks of liabilities and internal stock so
that all the operations can be perform can the profitability and growth.
 Financial control- an organisation must emphasize on creating the best use of their financial resources so
that they can get a better outcome integrated business operations by which the businessman substance and
the market for a long period of time and can establish a strong brand image in the market.

SECTION 2
Describe the various types of financial statement and analyse the use of ratios in financial statement.
Financial statement all the type of documents which keep all the records of I Nelson aspects of an
organisation. It is the formal documentation which helps in understanding the various records the financial data in
order to make understand the position of the business. It is the written document which give the brief information
about income and expenses incurred in the business so that they can write their financial resources in order to
make the best use of them. 13 different types of financial statement which are explained as follows:
 Income statement: it is the statement which analyse the revenue generated throughout the year within the
organisation. It is also called profit and loss account which help in analysing the performance of the
company during the financial year. It analysis the amount of money being spent on the purchase of raw
material and machinery. It also analysis the cost of goods sold which is the amount incurred on the
manufacturing of product and services and operating expenses is the overall cost that is being utilised in
the running of the business.
 Balance sheet: it is the statement which gives the overall overview of the company that it is the market
position of the brand. Statement which is been made on daily basis and some business prepare financial
statements, once in a year for some prepare on quarterly basis in order to get the overall position of the
company.
 The cashflow statement: it is the account in which all the cash inflows and outflows is is maintained and it
analyse the amount of cash is being entered and left in the business over specific period of time which is
called statement of cash flows. These accounts generally prepared for the company that are running their
business on the basis of accrual accounting method in which income statement includes the revenue that
the company have earned but yet not received and the expenses which the company have incurred but not
yet paid.
Various types of ratios are given below:
 Profitability ratio- It is the the quality of increasing the sale of the company bye tractor large group of
customers so that they can increase their profitability by which taken take a corrected decision in their
business. It is the aspects which includes the earning per share gross margin and net profit of the
company.
 Analysis of liquidity- it is concerned without ratio that is being measured the financial position of the
company by which the effectiveness of the business can be retained and the company also able to get their
cash as well as equivalent in the organisation.

 Summary of efficiency ratio- it is the measurement of the company's capital which helps in measuring the
overall progress of the company so that they can establish a good brand image in the market. Total assets
percentage, inventory turnover that help in meeting the productivity ratio.
 Analysis of financial gearing- this ratio is being used which help in analysing dark economic leverage
capacity for instance the supply of benefits that it must be gained as well as the outflow of cash. It is the
indicator of the form which help in getting the money for conducting the financial activities. Financial
leverage is are not the assets of the company it is the assets ratio as well as the proportion of proprietary
and return on assets.
The use of ratios in financial management are given below-
 Ratios help in knowing the loopholes in the company in which they need improvement so that they can
generate higher profitability and growth also help in getting the effectiveness in the various operations.
 This ratio help in understanding the comparison between the financial performance with the other
companies so that they can easily analyse the huge competition in the large market.
 With the help of these ratios, The company able to understand the financial position of the company by
which they can predict the higher productivity of the company. It also help in identifying the financial
position of the company.
SECTION 3
Company's key finance performance indicators:
Is the statement that is used to analyse the status of the company in the future so that they can increase their
market share and profitability.
Benefits and expenses statement: It is the consideration which help in showing the revenue of the company and
also help in knowing the value of the company at the end of the accounting period. It is the unchanged financial
statement that reflect economic condition of the company. It helps in calculating the overall profitability of the
company in which the group of 3 people announce the reasons that leads to rise taxable income.
Income statement
Particulars 2015 2016
Turnover form the
sales 179587 189711
Costs of goods sold
Material costs 38845 42597

production costs 12845 15231
labour costs 47285 50758
Gross profits 80612 81125
Overheads
Administrative
overhead 20251 13751
Operating costs 34293 22374 L
Interest 7081 1943
Net profit 18987 43057
Gross profit ratios gross profit / sales * 100
44.88744 42.76241
Net profit ratio Net profit / sales * 100
10.57259 22.6961
SECTION 4
Discuss the which helps in improving the financial performance of the company
When the company analyse the percentage of the organisation still helping set reminder success of the
company why was taken to the fact planning for the various stakeholders.
Gross profit
Year 2016 2015
Gross profit 81125 80612
Net sales 189711 179587
GP Ratio 42.76 44.89
Net profit
Year 2016 2015
Net Profit 45057 18987
Net sales 189711 179587
Net profit ratio 23.750336 10.5725916

Shareholder equity
2016 2015
Shareholder equity 83802 63057
Current ratio
Year 2016 2015
Current assets as % of current
liability
222% 304%
There are some recommendations and suggestions for the performance of the company are as follows:
 Effective funding allocation: they can have the effective funding which help in allocating the resources in
an effective manner so that they can meet the future and uncertainty and also reduce the loss of energy.
 Expense reduction: what is the main consideration of every business to keep their prices low so that they
can earn more profit by selling the large amount of product and services through which we can increase
their revenue.
 Debt recovery: it is important for the firm to have the responsible and maintain their financial efficiency
so that they gana better working in a particular operation which results in reducing the long term profits
which is having the adverse impact on the business growth.
CONCLUSION
From the above report, it is analyse to that financial statement are the necessary documents for every
organisation which help in knowing the financial position of the company. These are the aspects which carries all
the income and expenses that is being used during the financial year. Income statement includes the expenses and
income of the company that is incurded during the successful running of the business. Ratios help in
understanding the comparison between the two firms so that the analyser youth competition in the large market.
When the organisation effectively using the different aspects of financial resources this will help in increasing the
profitability and overall revenue of the company. The organisation is recommended to meet their debts so that
they can run their business in an appropriate manner. It is the obligation of the company to manage their profits
and looses so that they can establish a good brand image in the large market For ensuring the higher productivity
within the business.
APPENDIX
Business review Template

The Net Profit for the year 2016, is €? (2015: £18,987,000).
The Company’s key financial and other performance indicators during the year were as follows:
2016 2015 Change
E43,057 E18,987 I27
Turnover(continuing operations) 189,711 179,587 +56%
Profit for the financial year 43,057 18,987 1Z7%
Shareholder's equity 83.802 63,057 *32 9%
Current assets as °A of current liabilities
Customer satisfaction
222.4 °6
4.5
304°6
4 1
-82°6
+10%
Average number pf employees 649 618 +5%
Turnover from continuing operations increased by 5 6°fo during the year, primarily due to the
acquisition of the Extinguishers business on May 2015, which made a full year contribution in 2016.
Gross Profit = 81,126
Net Profit - 43,067
Net Profit increased in 2016 by 127 gA during the year.-
Shareholders' equity increased by 32.9% by 20,745.
The company’s "quick ratio" (Current Assets (excluding stock) divided by Current Liabilities) is 1,47:1
The company’s "current ratio" (Current Assets divided by Current Liabilities ) is 2,22:1
PLEASE SHOW YOUR WORKING OUT OF EACH OF THESE
CALCULATIONS

Profit for fanatical year %= 43,057-18,987=24,070
24,070 / 18,987= 1,267 x100= 126,77= 127%
shareholders' equity - 63,057 x 32,9% = 20,745
63,057+ 20,745 = 83,802
Gross profit= Turnover- direct cost (material, production, labour)
189,711- 108,586 = 81,125
Gross profit margin= gross profit/ sales x100
81,125 / 189,711= 0,427x100= 42,762= 42,8%
Net profit= gross profit- non operating expenses (administrative, other overheads
and interest)
81,125- 38,068= 43,057
Net profit margin= net profit / sales
43,057 / 189,71= 0,226 x100= 22,69= 22,7%
Current assets as % of current liabilities= current assets/ current Iiab Iities x 100

84,349 / 37,928= 2,22:3x 100= 222,392= 222,4%
Checking 304%-82%- 222%
Current Ratio= current asset/ current liabilities
84,349/37,928 = 2,22
Outck Ratio= current asset- stock/ current t!ab!Iities
84,349- 28,571 = 55,778/ 37,928= 1,47.1
Asset turnover= turnover/net asset
189,711/83,815 =2,26
Stock turnover= stock/cost of sales x 365
28,571/98,975 x365 = 105,36
Receivables oays= debtors / turnover x 365
26,367/ 179.587 x 365= 53.58= 54
Payable days= trade creditors/ cost of sales x 365
19,493/98,975 x 565= 71,88= 72
Notes to the financial statements
at31December 2016
3. Turnover
Turn over recognised in the income statement is analysed as follows,
2016 2015
£000 £000
Sa| e of goods 189,711 179,587
Turnover from continuing operations 189,711 179,587

4. Cost of Sales
2016 2015
Material Cost 42,597 38.845
Production Cost 15,231 12,845
Labour Cost 50,758 47,285
108,586 98,975
5. Overheads
2016 2015
Administrative Expenses 13,751 20,251
Other Operat› ng Costs 22,374 34,293
Interest 1,943 7,081
Total Overheads 38,068 61,625
Balance sheet as at 31 December 2016
Total
2016
Non Current assets
f0
Intangible assets 5,793
Tangible assets 52,812
Investments 10 693
69,296
Current assets
Stocks 28, 571
Trade oebtors 26,367
Short term deposits 14, 779
Cash at ban k and in hand 14 632
84,349
Current liabilities
Ban k loans and overdrafts 9,610
Trade creditors 19, 493
Other Creditors QT
Income tax payable 3, ABS
Other creditors including tax
and social security
Total assets less current
tiabiliAes
Non Current Liabilities Ban k loans and overdrafts Other Liabilities
Provisions for liabiliti es
Net assets

4,562
57,928
46,421
115,719
16,506
7,304
23 810
8,094
83,815

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REFERENCES
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Caperchione, E. and et. al.,2019. Innovations in public sector financial and management
accounting—for better or worse?.
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heritage sites. Journal of Cultural Heritage Management and Sustainable Development.
Hageman, S.A. and et. al., 2019. Economic and financial well-being in the social work
curriculum: Faculty perspectives. Journal of Social Work Education, pp.1-13.
Marak, Z.R. and Pillai, D., 2018. Factors, outcome, and the solutions of supply chain finance:
Review and the future directions. Journal of Risk and Financial Management, 12(1),
pp.1-23.
Taylor, J. and Meschede, T., 2018. Inherited Prospects: The Importance of Financial Transfers
for White and Black College‐Educated Households’ Wealth Trajectories. American
Journal of Economics and Sociology, 77(3-4), pp.1049-1076.
Zopounidis, C., Doumpos, M. and Niklis, D., 2018. Financial decision support: An overview of
developments and recent trends. EURO Journal on Decision Processes, 6(1), pp.63-76.
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