Importance of Financial Management

IMPORTANCE OF
FINANCIAL
MANAGEMENT

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
SECTION 1......................................................................................................................................3
Financial management................................................................................................................3
SECTION 2......................................................................................................................................3
Main financial statements and use of ratios................................................................................3
SECTION 3......................................................................................................................................4
i. Business review template..................................................................................................4
ii. Income statement...............................................................................................................5
iii. Balance sheet.....................................................................................................................5
iv. Ratio analysis.....................................................................................................................6
SECTION 4......................................................................................................................................8
Process that business might use to improve the financial performance......................................8
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................11
APPENDIX....................................................................................................................................12

INTRODUCTION
Financial management is defined as the strategic planning and organizing of the financial
undertaking within the company. This is helpful as the company will be able to manage the
working relating to finance in such a manner that it will assist company in developing more
accurate financial statements. The present report will outline the importance and different types
of financial statements. Further it will also outline the preparation of different types of financial
statements.
SECTION 1
Financial management
The concept of financial management is about to manage the financial resources of the
business entity. Resources are segregated into financial and non- financial. In context to the
financial management only financial resources are monitored and controlled. This involves
planning of financial resources, analysing potential sources to generate funds, monitor the utility
of the financial resources and also to control the financial decision-making of entity (Bapat,
2019). Concept of financial management is based on the objective of achieving bets level of
outcomes against utilisation of financial resources of the entity. The aim is to take decisions that
can the best lead to address the maximum potential outcomes for the entity.
Importance of financial management
Financial management is among the crucial operation direction associated with the
management. All decisions taken under the financial management in organisation are based on
the strategic direction of the business entity. This whole management is important as it allows the
entity to maximises the potential outcomes against the financial decision-making taken by the
management. This is further crucial as unlike other resources such as human resources and many
other financial resources are limited in number which requires board of directors to take best
level of decisions related to financial planning, monitoring and control of company's financial
resources to gain the best level of stability against the financial decision-making.
SECTION 2
Main financial statements and use of ratios
Financial statements are segregated into different parts demonstrated in the following
manner.

Balance sheet: Balance sheet is among the most prominent financial record. This demonstrates
the balance between assets of business entity and liability of the organisation. This also include
capital invested by the owner in business and also the profitability share devoted to the capital of
shareholders.
Income statement: Income statement is the reflection of company's expenditures and income of
the respective financial year. This statement only consumes the financial information of the
respective financial year.
Cash flow statements: Cash flow statement is the financial record demonstrate the use of cash.
This statement also disclose about the liquidity position of the business entity in the respective
financial year. Cash flow statement also allow the business entity to take decision related to
controlling of expenditures of the respective financial year. This statement motivates the
management to improve the liquidity management in company.
Use of ratios
Ratios are the most prominent way or technique to take decision in business. Ratios
disclose all aspects of business outcome such as profitability, liquidity and all other elements.
Company management can make the best level of decision in business with support of ratios.
This practice support the entity not only plan business operations for future strategic growth but
also take control the business operations (Vanauken, Ascigil and Carraher, 2017). Ratios can also
be sued to monitor the operations of the business entity. Use of ratios are also conducted in
maximising return through improving business decision-making.
SECTION 3
i. Business review template
2016 2015 Change
£’000 £’000 %
Turnover (continuing operations) 189,711 179,587 5.60%
Profit for the financial year 43,057 18,987 126.8
Shareholder’s equity 83802 63,057 32.90%
Current assets as % of current liabilities 222% 304% -82%
Customer satisfaction 4.5 4.1 10%