Business Finance BMP3005: Financial Management and Improvement

This report provides a comprehensive overview of financial management, emphasizing its importance in business organizations. It defines financial management and discusses its role in achieving business goals through enhanced advantages, capital development, and cost restriction. The re...Read More

Business Management with Foundation
BMP3005
Applied Business Finance
The concept and importance of financial
management and the processes
businesses might use to improve their
financial performance
Submitted by:
Name:
ID:
0

Contents
Introduction p
Section 1: Definition and discussion of the concept and
importance of financial management p
Section 2: Description and discussion of the main
financial statements and explain the use of ratios in
financial management
p
Section 3: Using the template provided p-p
i. Completing the Information on the ‘Business Review Template
(Ensure that you display your calculations for this detail)
p
ii. Using Excel producing an Income Statement for the Sample
Organisation (see Case Study). This should be included within
your appendices p
iii. Using Excel completing the Balance Sheet p
iv. Using the Case study information describing the profitability,
liquidity and efficiency of the company based on the results of
ratio analysis p
Section 4: Using examples from the case study describing
and discussing the processes this business might use to
improve their financial performance p
Conclusion p
References
Appendix p
p
1

Introduction
Financial management is considered as a significant part in a business
organization which is essentially concerned towards the advantage and achievement of
the company. There are different explicit roles which are diverse in nature that are played
by financial management which help in achieving the various goals and objectives. This
can be done through enhancing the advantages, choosing the development of capital,
restricting the costs and many more. The idea of financial management is closely related
to the working capital management in present scenario. It helps in supervising and
controlling instabilities which may impact the regular functioning of business. The report
will be focusing on different kinds of financial conceptual techniques in context to the
significance of financial management. Also, with the help of relevant analysis such as
ratio analysis different financial outlines related to the business processes of the
business association can be utilize. This will help to improvise the financial and overall
performance of the company considerably.
Section 1: Definition and discussion of the concept and
importance of financial management.
Financial management is characterized as the essential arranging, sorting out,
coordinating and controlling of monetary exercises in a business association. It also
incorporates applying the board ideas to the executive standards of the monetary
parts of the business association (Gold and Kursh, 2017). It helps in adequately
overseeing and deciding the accessibility of money in the company. It is likewise the
most common way of making, creating and executing a strategy to establish that all
the units of business are pursuing accomplishing potential goals. It helps to manage
the decisions related to the essential financial and venture action for the growth of
the association driving them to consider applicable choice in setting the objectives
and destinations of the business. The financial authorities of the association
guarantee that their accessibility of money in every single branch of the association
must empower to easily complete their operations of business.
2

Financial management is enlightened and considered as one of the fundamental
variable of the association empowering to guarantee the accessibility of money in the
business organization. This will assists the entity in guaranteeing the efficient
financial ability so that the obtaining of the necessary asset can be done successfully
and proficiently (Rani and Asija, 2017). Adequate application of financial
management assists the business association with providing strong financial position
through arranging the finances and successfully using and allotting the asset in
every single division of the business empowering them to perform effectively and
efficiently. Furthermore, it helps the finance manager to take all the financial
decisions that are adequately incorporated with business end goals.
Section 2: Description and discussion of the main
financial statements and explain the use of ratios in
financial management.
Financial statements is characterized as the written summary of all the
financial transactions and position of the business organization. It helps in providing
growth to the business and the financial status in order to evaluate the performance
of the company (Groot, 2017). These financial statements are often inspected by
different external parties like government offices, auditors, tax officers etc to monitor
the financial situation of the business entity. The different financial statements
majorly incorporates Balance sheet, income statement and cash flow statement as
referenced beneath:
 Balance sheet: It is viewed as one of the fundamental financial summaries
arranged by the business organization including all types of assets and
liabilities of the company. Also, it incorporates the investors value empowering
business to decide the financial situation of the organization.
Equation: Assets= ( Liabilities + Owner's Fund )
 Income statement: Another budget summary of the organization includes
income statement, it also includes all the incomes and expenditures which
have been generated from the business operations. It helps in deciding the
3

degree of productivity of organization for a particular financial period as well. It
helps in analyzing all the incomes, costs, pay and profit on shares critically.
Equation: Net Income=( Revenue - Expenses )
 Cash flow statements: It refers to a written statement that helps in sorting
out the budget summaries which empowers business to take decisions
regarding the absolute cash inflow and outflow of the business entity. It also
helps the organization to critically evaluate the capacities to produce cash to
take care of their financial obligations and meet their consumptions when
required.
Accounting ratios are characterized as analysis of the company’s overall
monetary information of around at least two years to decide their financial
situation in the competitive markets (Yeo and Fisher, 2017). It is viewed as
one of the most essential as well as fundamental tool utilized by the business
organization to decide and investigations their benefit and monetary states of
the organization. Also, the accounting ratio are significantly used to examine
the performance in that target marketplace in contrast with its rivals in
general. Accounting ratios are basically divided into different types like
liquidity ratios, profitability ratios, solvency ratios, turnover ratios and many
more.
Section 3: Using the template provided:
v. Completing the Information on the ‘Business Review Template
(Ensure that you display your calculations for this detail)
Kindly check the appendix section.
vi. Using Excel producing an Income Statement for the Sample
Organization (see Case Study)
Kindly check the appendix section.
Using Excel completing the Balance Sheet
Kindly check the appendix section.
vii. Using the Case study information describing the profitability,
liquidity and efficiency of the company based on the results of
ratio analysis
4

1) Profitability Ratios : This ratio a business organization to analyse the
capacity to procure profits from its business operations, accounting report
resources, or investors' value. Majorly, profitability ratios helps in conveying
the information of how effectively an organization creates benefit and deliver
incentive for its investors.
 Net Profit Ratio: Gross profit/Net sales*100
Formula Calculation
Gross profit/Net sales*100 (2015): 18,987/179,587*100=10.57 %
(2016): 43,057/19,711*100 =22.69 %
INTERPRETATION: In the year 2016, the net profit was higher than the year
2015 which is stating that the business organization having an efficient
capacity to covert its sales into higher amount of profits along with higher level
of efficiency. While, it was comparatively very much lower in the previous
year.
 Gross Profit Ratio:
Formula Calculation
Net profit/Net sales*100 (2015): 81,125/189,711*100=42.76%
(2016): 1650-675/6000*100= 16.25%
Interpretation: The gross profit ratio was higher in the year 2015 because the
cost of goods sold fell down in the year 2016 drastically. Also, depreciation in
the cost of goods sold resulted in the increment of the gross profit of the
company in comparison with the Year 2015 and on the other hand it
depreciated the gross profit of the year 2016.
Liquidity Ratios: These are those ratios that majorly helps a business entity to
calculate, measure and analyse the liquidity position of the company. Current assets
5

and current liabilities are two of its main and important components (Saptono, 2018).
Current Assets are basically those items which are considered as the tangible items
that can be converted into cash in a short term helps in improving the liquidity of the
organization. While on the other hand, current liabilities are those items which are
considered as a financial obligation for which the company is having the
responsibility to payback to the concerned party in a particular time frame.
 Current ratio: Current Assets/Current Liabilities
Formula Calculation
Current Assets/Current Liabilities 54,549 / 57,928 = 2.22:1
 Quick Ratio: Quick ratio/current liabilities
Formula Calculation
Quick ratio/current liabilities 84,349-2,571/37,928 = =1.47:1
2) Efficiency Ratios: These are the relevant ratios which assists in representing
the percentage of revenue along with some other variables and fluctuations
(Mokni and Mansouri, 2017). The major aim of this ratio is to minimize the
ratio as much as possible in order to develop a higher level of efficiency which
will help the organization in achieving the goals effectively.
Sales Revenue per employee =SaIes revenue /number of employee
Formula Calculation
SaIes revenue / number of
employee
(2016)= 189,711/649=292
(2015)= 179.587/618= 290
The result of analysis of efficiency ratios states that the organization utilizes
its workforce effectively and this is resulting in high level efficiency in the
organization. Likewise, the business with a higher competitive advantage
based on the financial information disclosed for the company is more
6

proficient, and consequently generating profits for the organization.
Section 4: Using examples from the case study describing
and discussing the processes this business might use to
improve their financial performance.
It is highly significant for any business organization to have an effective financial
performance. The reason behind that is it will depict that whether the it is having
capacity to produce higher amount of incomes and understanding the financial
strength of the business (Ramachandran and Kakani, 2020). A business
organization can utilize various techniques and helping the organization to improvise
the business performance of the business:
 Debt Consolidation: It is basically a process which can be utilized to
combine different financial obligations by taking an advance and solidifying it
into a bigger financial obligation. This major objective of this method is to keep
away the risks by taking several financial obligations. This will result into
greater cost of financing and legal issues as well. Accordingly, this process
will help in improving the financial performance of business.
 Maintaining positive income: As money is considered as the main
component of the business, with positive income turns into an obligation of the
business to keep up with the financial stability (Tran, 2020). This is considered
as the significant justification for considering the income as the key life saver
of business.
 Minimize overhead expenses: The overhead expenses are considered as
the important costs which helps out a business organization. These are the
major functional costs which don't consider any profit from the business
ventures made. In addition to this, it is highly vital for the business to reduce
overhead expense which can the business to increase the level of income and
guaranteeing better monetary dependability.
 Professional help: The organization can likewise depend on the professional
help to work on the financial performance of the business. The financial
authority can help in working on the income of the business (Orji, 2019).
Accordingly, in difficult circumstance consulting a financial professional for
technical assistance.
7

 Liquidating resources: It can defined as an important concept of finance and
economics that majorly focuses on bringing a business organization to the
phase when the resource or assets of the business are sold off (Benlemlih,
2017). Therefore, it can be considered as the general parties of the business
are subjected to liquidation.
Conclusion
It can be concluded from the above report that it is profoundly significant for
each organization to use the application of the financial management in the
organization. Additionally, the statement of finances and its understanding should be
done so that the business can work fair and achieve high level of productivity
impressively. This will assist the organization with accomplishing more elevated level
of benefits alongside achievement in the long run of the business course.
References
Gold, N. A. and Kursh, S. R., 2017. Counterrevolutionaries in the financial services
industry: teaching disruption–a case study of roboadvisors and incumbent
responses. Business Education Innovation Journal, 9(1). pp.139-146.
Groot, M., 2017. A primer in financial data management. Academic Press.
Yeo, J. H. and Fisher, P. J., 2017. Mobile financial technology and consumers’
financial capability in the United States. Journal of Education & Social
Policy, 7(1). pp.80-93.
Saptono, A., 2018. Entrepreneurship education and its influence on financial literacy
and entrepreneurship skills in college. Journal of Entrepreneurship
Education, 21(4). pp.1-11.
Ramachandran, N. and Kakani, R. K., 2020. Financial Accounting For Management|.
McGraw-Hill Education.
Tran, Q. T., 2020. Corruption and corporate cash holdings: international
evidence. Journal of Multinational Financial Management, 54. p.100611.
Benlemlih, M., 2017. Corporate social responsibility and firm financing decisions: A
literature review. Journal of Multinational Financial Management, 42. pp.1-10.
8

Rani, N. and Asija, A., 2017. Has Financial Crisis Affected the Announcement Gains
of Indian Cross-border Acquisitions?. IIM Kozhikode Society & Management
Review, 6(1). pp.55-66.
Orji, O., 2019. The effect of budget implementation on the economic growth of
Nigeria (1999–2018). Journal of Accounting and Financial Management, 5(3).
Mokni, K. and Mansouri, F., 2017. Conditional dependence between international
stock markets: A long memory GARCH-copula model approach. Journal of
Multinational Financial Management, 42. pp.116-131.
Appendix:
(1) Income Statement
(2) Balance Sheet
9

(3) Business Review Template
10

11

Calculations
12