Importance of Financial Management

IMPORTANCE OF
FINANCIAL
MANAGEMENT

INTRODUCTION
Financial Management report refers to setting up, organizing, directing and controlling
activities related with funds of organization. In current scenario it has become essential for firm
to develop strategic plan for overcoming competitions. The present report will include concept
and importance of financial management. It will comprise discussion on main Financial
Statement (FS) and use of ratios. Current case study will give emphasis on calculation on F,
balance sheet and ratios. Current report will give emphasis on processes that can improve
financial performance.
MAIN BODY
SECTION 1
Defining and discussing importance of financial Management
FM is area of function in firm which is responsible for expenses, profits, revenue, cash
and credit concerned with business activities. Small, medium and large every type of companies
uses FM techniques for better allocation and monitoring. It has become significant for firm to
develop and implement FM for sound health of company.
 Identifying extent of resources required for accomplishing short as well long term
objectives of organization (Brown and et.al., 2021). It helps business’s leaders to get
proper performance evaluation for scenario planning.
 FM provides accurate and required data for decision making procedure. With help of
this, business becomes able to execute plans by referring date to date financial report.
This aids organization to ascertain prediction regarding unforeseen circumstances.
 Ensuring that each department is contributing towards vision of company. Each function
is cooperating with established budget to accomplish setup objectives is monitored by
financial management.
 Enough supply of funds for ensuring organization’s shareholders get good returns on
investment. Optimization of efficient techniques for utilizing funds obtained by assuring
that business had good profitability (Brigham and Houston, 2021).
 Providing better growth opportunities through assessing suitable investment option
which can give accomplish both personal as well firm goals.
SECTION 2
Describing main financial statements
FS are prepared by company for getting summarized data for business operational
activities. It provide assistance to enterprise in evaluating its each functional area expenditure

and income so that applicable policies can be formed for attaining desirable position. The crucial
statement that aid company in decision making are income, cash flow , change in shareholders
equity statement and balance sheet (Kembauw and et.al., 2020). Each statement has its own
characteristics in turn provide significance in business activities.
Profit and loss account is one of the important statement formulated by organization for
having clarity regarding income & expenses occurring in company from operational activities.
Summary of income, expenses, revenue, gain can be achieved through preparation of income
statement which is utilized for determining profit margins. It is estimated for specific period of
time like one year.
Cash Flow Statement (CFS) summarizes company’s receipts and payment segments. It is
divided into three parts operating, investing and financing over a period of time. The liquidate
position can easily be ascertained with help of CFS. Working capital get impacted from the CF
as it is part of current assets that provides deep insights into organizational financial health.
Balance sheet is prepared on particular date usually at the end of year for evaluating company’s
actual position from summarizing assets and liabilities sites. The statement of equity is reconciles
the balance of beginning with ending. These are major financial statement which provides
guidance for having appropriate road map for gaining desirable company position.
Use of ratios in FM
Ratios are calculated by several parties for taking overview of company’s s operational
activities and efficiency of managing resources (Tashnazarova, 2021). There are various types of
ratios calculated for the purposing of getting interpretation regarding business policies and
structure for conducting business activities. It is used for following reasons:
 Financial ratios help organization to be able to compare its current data with earlier for
creating accurate image. Analysis is exerted by analyst, creditors, lenders, banks,
financial institutions, stakeholder for taking related decision making procedure. This data
gives assistance in determining investing in company would be beneficial for attaining
their personal goals. This will aid company to determine gaps in competitive advantages
as compared to competitors. With respect to this, firm will get deep knowledge regarding
changing circumstances so that better productive decisions can be taken into
considerations.
 Trend line can be identify for assessing company’s directional growth. In order to make
choice regarding strategic actions such larger reports makes the process complex
therefore ratios can used to conclude this larger financial reports.
 Operational efficiency for generating profit from revenue, assets, managing liabilities
policies, credit collection period, etc all can be given emphasis through ratio ananlysis.