Unit 407 Understanding Financial Management - Desklib

Unit 407 Understanding Financial Management aims to develop understanding of finance within the context of an organisation. This project covers topics such as cash flow forecasting, financial performance indicators, and budget setting. The project requires approximately 18 hours of research and a word count of 1500-2500 words. The assessment criteria includes describing the organisation's sources of finance, analysing financial stakeholders, explaining cash flow forecasting and management, and providing a general assessment of business/organisational performance using appropriate financial measures.

Unit 407 Understanding financial management
The purpose of this unit is to develop understanding of finance within the context of an
organisation, as required by a practising or potential middle manager.
TASK: This task provides an opportunity for you to relate your learning directly to your current organisation.
It is recommended that you discuss the project with your line manager to explore and agree how the task
could be used to support the needs of your employer (as well as evidencing your learning as part of
completing your ILM qualification).
NOTE: You should plan to spend approximately 18 hours researching your workplace context, preparing
for and writing or presenting the outcomes of this project for assessment. The nominal word count for this
project is 2000 words: The suggested range is between 1500 and 2500 words, however individuals have
different writing styles, and there is no penalty if the word-count range is exceeded.
This will also reference through the Standards and Behaviours. You can use varying methods to enable
you to complete these questions. All can be completed using either written, typed or audio answers to
demonstrate your knowledge and understanding of how you support your service users within your setting.
Discuss with your assessor and decide your preferred method.
This unit has 3 learning outcomes
1. Understand finance within the context of an organisation
2. Understand the value of recording financial management information
3. Understand budgets for the management of own area of operation
Important words to Remember (these will appear in BOLD throughout the questions):
 Describe – To give an account in speech or writing
 Explain – To make plain or comprehensible
 List – A series of words
 Identify – To establish, determine or ascertain
 Outline – Summary of a text or dialogue
 Analyse – To examine carefully & in detail
 Define – To state the meaning of (a word, phrase)
Please use the headings shown below when
writing up your project
Assessment Criteria
Understand finance within the context of an
organisation
The first part of this task is to describe the principal
features of the organisation’s sources of finance or
funding, and then to analyse the organisation’s
financial stakeholders in order to provide an
explanation of their various expectations of the
organisation.
An account of the practices of both cash flow
forecasting and cash flow management must then be
provided to explain why they are both important, and
you are then required to use appropriate financial
measures to provide a general assessment of
business/organisational performance.
 Describe the organisation’s sources of
finance or funding (8 marks)
 Analyse the range of financial stakeholders
and explain their various expectations of the
organisation (16 marks)
 Explain the importance of cash flow
forecasting and cash flow management to
the organisation (12 marks)
 Provide a general assessment of
business/organisational performance using
appropriate financial measures (16 marks)
Understand the value of recording financial
management information
The second part of the task requires an explanation of
how a range of financial performance indicators are
used to monitor the achievement of objectives.
You are then required to explain the purposes of the
main financial documents used within the
 Explain the role of financial performance
indicators in monitoring the achievement of
objectives (12 marks)
 Explain the purposes of the main financial
documents used within the organisation (12
marks)

organisation.
Understand budgets for the management of own
area of operation
The final part of the task requires you to explain the
process of budget setting in the organisation and how
budgetary techniques are used to contribute to
controlling cost in own area of operation.
 Explain the process of budget setting used in
the organisation (12 marks)
 Explain how to use budgetary techniques to
contribute to controlling cost in own area of
operation (12 marks)

Please use this space to record your project (please add additional space as required)
UNDERSTAND FINANCE WITHIN THE CONTEXT OF AN ORGANISATION
o Describe the organisation’s sources of finance or funding (8 marks)
NHS England or the National Health Service which has been involved in the promotion and presentation
of high quality health and care services for all types of organizations and individuals. The organization
has been involved in mandating a contract, referred to as the “NHS Standard Contract” and can be used
by the commissioners for all contracts related to the health care sector of the nation. Furthermore, the
current contract is available on the official website of the institution, whilst the fact that the National
Health Service is primarily funded but treats few of the patients in the private pay category (Zerihun,
2019). The NHS is mainly funded by the Department for Health and Social Care Budget, whereas the
planned spending in year 2021 to 2022 has been estimated at £190.3 billion, with almost £136.1 billion is
passed onto the National Health Service. The remainder of the amount is allocated among the national
bodies for spending on other health related functions such as the public health, training and development
of NHS staff along with the aim to regulate or keep track of the various aspects to maintain the quality of
the care provided. The following is the pricing provided for the various treatments provided by the
National Health Service:
There are various private finance options which could be implemented or which are implemented by the
organization, through proper planning and execution, namely:
 Venture Capital – The venture funding is referred to as a form of private equity and a type of
financing that the investors provide, so as to help the start-ups or newly set-up companies and
the small businesses that have significant amount of growth potential for the future. Venture
capital is generally the fund which has been invested by the investment banks and other financial
institutions.
 Angel / Seed Investing – The angel investors are referred to as the individuals who are wealthy
enough to help the new businesses through the investment made towards them. Furthermore,
the angel investors are required to use their own funds and are required to be much more patient
towards the entrepreneurs.
 Loan from Family / Relatives / Friends – The funds can also be raised from the family, relatives
and friends, whereas the amount will be interest free, in most cases, if such individuals agrees
upon the same. Furthermore, the loan amount can be easily acquired through following a much
easier procedure as compared to the procedure which must be followed by the formal institutions
such as the banks.
o Analyse the range of financial stakeholders and explain their various expectations of the
organisation (16 marks)
In the Health Care Sector, there are various stakeholders who get involved in the practice of raising the
adequate amount required for the effective and coherent management of the health care operations and
henceforth the whole procedure related to this industry, is run without any kind of error or problem. The
policies which will be adopted through the management of the various policies along with the rules and

regulations will be impacted by the various individuals or organizations, henceforth the funds can be
utilized optimally. Following are the different types of Shareholders who are involved in investing for the
health care sector:
 Providers – The individuals who are involved in supplying the necessary bulk products to the
retailers who are required sell such items to the consumers. The providers operationalize care
delivery, by keeping track of the operations performed through being in the policy framework.
Furthermore, the providers are required to optimize the relevant resources for the individual care
which will be provided to the patients, while maintaining the correct information related to the
patients. Many of the providers are independent businesses that are required to manage their
own operations together with the finances.
 Payors – Payors are identified as the individuals or persons who enrol the patients as
beneficiary and operationalize the financial elements of the policy framework. They are required
to maintain the care related services and they are required to procure the care services through
the providers on behalf of their patient beneficiaries. They are also required to take the actuarial
tasks for ensuring the financial sustainability if the care program along with the report which they
provide to the policy makers.
 Patients – The individuals or the citizens of the country who avail the required services through
various organizations. The policy makers hold an implied duty towards such individuals and
henceforth the patients receive the care services from such institutions. Patients receive the care
services from the providers and are regarded as the beneficiary customers of the payors and
patients may also need to access the information about the procedure and methods followed
within the care procedure and henceforth the patients also play a vital role in the health care
sector of the nation (Tetteh, 2021)
 Policy Makers – The organizations or the individuals who are required to be able to manage the
various rules and regulations which aid in comprehending the knowledge which is required for
effectively managing the policies and methods adopted in the health care sector of the country.
Furthermore, the policy makers establish the framework within the health care sector for better
understanding the health care which is provided to the citizens of the country. Furthermore, the
policy makers will perform their functions through the management of the required aggregation of
the data from the patients, providers and the payors to the development population level metrics
that inform their health and health economic policies.
1.3 Explain the importance of cash flow forecasting and cash flow management to the organisation (12
marks)
Cash Flow Forecasting
The cash flow of the company is referred to as the amount of cash or the monetary value of cash which
has been calculated through the adoption of the cash flow statement and signifies the cash inflow or the
outflow. The statement is divided into three sections which are operational activity, investment activity
and the financing activity, which help the company identify the various operations which are involved in
the business. Furthermore, the concept of cash flow forecasting helps the company estimate the sales
and expenses of the company along with the probability of how long the cash invested in the company
will be able to fund the expenses or cover-up the losses of the company. Also, the cash flow forecasting
will help the management identify the time period after which the organization will require cash in the
business to manage their expenses and losses (Susan, 2020). Following are the relevant steps which
are required to be followed within the organization, to give effect to the cash flow forecasting process:
 Forecasting the income or the revenue of the company is the first and foremost task where the
management will have to forecast the sales for a specific period of time, whilst the fact that all the
necessary or required trends will need to be observed and examined to help the analysts along
with the management assess the results or to move towards the next step. It must be noted that
the sales figure of the business can change very quickly; or is considerably more volatile than
any other business figure, henceforth the company should be able to forecast the sales figure
accordingly.
 Estimation of the cash inflows is the next step which requires the management to help the
analysts correctly implement the process of the cash flow forecasting. Here, the nature of the
cash flows may vary as per the nature of the business and the various workings which the
company is involved in. The cash flows could be a loan being paid back, selling off an asset,
GST rebates and the tax refunds, government or other grants, owners investing more money or
the other types of similar cash income or expenses.
 Review the estimated cash flows against the actual amount to make sure that the relevant
estimated cash flows do match with the cash flows which are actually incurred by the company.
This the most important in the whole cash flow forecasting step, where the overall amount of the

cash inflows should be more or equal to the estimated amount (Klapper, 2020). Furthermore, the
cash outflow will have to the less than the estimated amount of the cash outflows.
Cash flow management
The cash flow management is identified as the process which the company follows through the
examination or the observation of the various monetary and cash transactions which the organization is
involved in. Furthermore, the businesses manage the cash flows to ensure that the debts or expenses of
the company are adequately paid off along with other similar expenses. Following are the areas for which
the cash flow management concept is utilized in the company:
 Credit Worthiness and Solvency – Banks and the financial organizations often prefer the
positive cash flow indicates that the company’s cash flow are consistent along with being
predictable. Banks prefer to lend these types of the borrowers and this indicates that the next
instalment which has to be before the deadline and in full. Furthermore, the health of a company
will require to maintain the cash flow, to better assess the health of the company and impact the
credit score. The organizations which are equipped with a strong credit score will have an easier
time raising the funds on the open market or attracting international investment.
 Favourability for the CAPEX and investment – The maintenance of the positive cash flows
and incurring more of the positive cash flows are identified as the surplus, is often the essence of
a good cash flow management (Kamaruddin, 2021). The theory proposes that inflows should be
constantly exceed outflows in order to maintain a surplus, instead of sitting idle, these funds are
often required to be managed through investing them in the generation of the income.
Furthermore, the company will have to invest and sets aside the money for giving effect to the
transactions or the operations, whilst the fact that the company will be able to make an CAPEX
acquisition. Due to the effective and efficient cash flow management system of the company, this
relieves the burden on the funds from operating operations along with the expenditure on the
capital nature purchases.
o Provide a general assessment of business/organisational performance using appropriate
financial measures (16 marks)
Calculation of the Ratios for the year 2019 and 2018
• Assets Turnover Ratio = Total Sales / Average Total Assets
= 3495 / [(3812 + 2503) / 2]
= 3495 / 3157.5
= 1.10 times

Interpretation – A company's asset turnover ratio describes the relationship between total sales and the
average total assets of different individuals. Furthermore, the company's asset turnover ratio in this case
is 1.1, indicating a stable financial position of the company in the industry, but 2.5 times lower than the
ideal, which means is the asset turnover ratio that can be improved. significantly.
• Current Ratio = Current Assets / Current Liabilities
= 1687 / 744
= 2.27 times
Interpretation – The reciprocal relationship between current liabilities and current assets is defined as a
current ratio of 2:1. Here, the current ratio of the organization has been calculated as 2.27 times, which
determines that the management of the company's assets is efficient. However, unreasonably high profit
margins mean that debts are not being repaid efficiently and therefore the company cannot manage its
liabilities adequately.
Management Accountant – The management accountants are identified as an individual who works in
the finance or the accountancy department and is often in charge of the management of the various
financial statements or the documents in which the company records the various transactions after
evaluating them monetarily. Following are the various roles of the management accountant:
 Preparing monthly management accounts and other financial reports such as budgets.
 Presenting reports to senior management to aid with business decision making.
 Compiling strategies that will reduce business costs.
 Obtaining finance for projects.
 Advising on the financial implications of business decisions.
 Developing and overseeing financial systems and procedures and identifying opportunities to
improve these.
 Controlling income and expenditure within the business and ensuring that expenditure is in line
with budgets (Eppich, 2019).
 Overseeing accounting technicians and support with generic accountancy tasks.
UNDERSTAND THE VALUE OF RECORDING FINANCIAL MANAGEMENT INFORMATION
o Explain the role of financial performance indicators in monitoring the achievement of
objectives (12 marks)
The financial performance indicators can be identified as the various ratios which are calculated in the
course of the business where the company performs the analysis of the various ratios so as to know the
position of the business items which the company owns or owes. Following are the major ratio types
which are required to be analysed and calculated by the company so as to help the management assess
the position of such organization in the industry:
 Profitability Ratio – A profitability ratio is a type of financial metric which helps the organization
comprehend the ability to generate profits relative to its revenue, operating expenses, balance
sheet assets, or equity. Ownership over time, data usage at a specific point in time. Profitability
ratios can be contrasted with efficiency ratios, which take into account how a company uses its
assets internally to generate revenue (as opposed to profit after expenses). There are various
types of the profitability ratios which help the company assess the position such as the gross
profit ratio which helps the company understand how the gross profit of the company is affected in
relation to the sales of the company. Furthermore, the Net profit ratio is also the amount which is
calculated after the deduction of the various expenses and adjustments of the non-operating
items, through comparing it with the sales of the company (Drake, 2020).
 Liquidity Ratio – The solvency ratio is often considered as an important and critical type of
financial metric which is put tom use, to determine a debtor's ability for the current debts, to be
paid in full without the need to raise externa capital by the entity. Solvency ratio measures a
company's ability to pay its debts and margin of safety by calculating metrics such as current
ratio, quick ratio, and cash flow ratio. operating currency. This ratio is often used to deal in the
assessment of the position of the company in relationship to the various volatile and liquid assets
of the company, through the analysis and observation of such items, for helping the company
deal in the management of the liquid assets and other similar situations which may arise due to
the dynamic nature of the financial market and the economy as a whole.
o Explain the purposes of the main financial documents used within the organisation (12
marks)

 Balance Sheet – The balance sheet of the company is identified as the document which are
prepared by the company to record all of the business assets and liabilities which the company
deals in along with the idea to assess the financial position of the company in the market.
Furthermore, the balance sheet of the company also helps perform the analysis through
examination of the stakeholder’s liabilities, investments, property plant equipment, intangible
assets, other assets, current liabilities, non-current liabilities and other items.
 Statements of Changes in Equity – A statement of changes in equity (also known as a statement
of changes in equity) is a set of financial statements that a company must prepare along with
other related financial statements at the end of the reporting period. In the United States, the
statement of changes in equity is also known as the statement of retained earnings. A statement
of shareholders' equity shows changes in a company's shareholders' equity. Changes commonly
reflected in the statement of shareholders' equity include earnings earned, dividends, capital
inflows, stock withdrawals and net losses (Dale, 2018).
 Income Statement – The income statement is one of the three important financial statements
used to report a company's financial results for a given accounting period. Two other important
statements are the balance sheet and the statement of cash flows. Also known as the profit and
loss (P&L) statement or the Income and expense statement, the income statement primarily
focuses on the income and expenses of a business for a given period. The best way to analyse a
business and decide if you should invest is to understand its income statement.
UNDERSTAND BUDGETS FOR THE MANAGEMENT OF OWN AREA OF OPERATION
o Explain the process of budget setting used in the organisation (12 marks) & 3.2 Explain
how to use budgetary techniques to contribute to controlling cost in own area of operation
(12 marks)
Budget Process – The budget is defined as the document which the company uses so as to help the
management of the various amounts which are estimated for the operations or the activities performed in
an organization. Furthermore, the budget helps the organization maintain integrity and stability
throughout the organizational structure, henceforth following are the process which must be implemented
in the company:
 Estimation of the expenses which the company will have to incur for a specific activity are
required to be done by the analysts to move on to the next step for executing the budget of the
company.
 Estimation of the various revenue items or the operations which will lead towards the inflow of the
benefits of the company.
 The next step is to first estimate the deficit or the amount of difference between the various
figures related to the expense and income of the organization, which is negative or a loss to the
company (Chung, 2021)
 After the calculation of the deficit amount, the next step is to find different ways to mitigate the
deficit and make amount or the difference, positive.
 The last step of the procedure is to assess the format and operations which are required to be
included in the budget.
The budgetary techniques are often used by the management so as to impact the overall organizational
structure, which will avoid unfavourably conditions such as over or under consumption of the resources.
The various techniques which are put to use in an organization to help the management in smooth and
systematic running of the business, are discussed as follows:
 Incremental Budgeting – The technique of the incremental budget takes into account the last
year’s actual figures and adds or deducts the percentage which has to be obtained from the
current year’s budget. It is the most commonly used budget due to the simplicity and systematic
workings it provides (Bialowolski, 2020)
 Activity Based – The activity based costing method is identified as the technique which assigns
the overhead and indirect costs, such as the salaries and utilities. The method often recognizes
the relationship between costs, overhead activities and manufactured products along with the
assessment of the indirect costs to products less arbitrarily.

Product evidence to obtain for the unit;
References
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