Applied Business Finance: Strategies for Improving Performance

This report provides a comprehensive overview of applied business finance, emphasizing the importance of financial management in achieving organizational goals. It covers key financial statements such as the balance sheet, income statement, and cash flow statement, along with the us...Read More

Applied Business
Finance

Table of Contents
Applied Business Finance...........................................................................................................1
Introduction......................................................................................................................................4
Financial Management and Its Importance......................................................................................4
Financial Statements & Use of Ratios.............................................................................................5
Business Performance Review.........................................................................................................8
Ways to Improve Business Performance.........................................................................................9
Marketing Strategy .....................................................................................................................9
Other Strategies.........................................................................................................................10
Conclusion.....................................................................................................................................10
References......................................................................................................................................11
Appendix........................................................................................................................................12

Introduction
Financial management is considered as an important function in an organization which is
majorly concerned with the profitability and success of the company. There are different specific
task that are played by financial management which help in achieving the organizational goals by
maximizing the profits, determining the structure of capital, minimizing the costs and many
more. The concept of financial management is concerned with the working capital management
in short term. It helps in managing & controlling fluctuations which may affect the day to day
earning of the business organization. The report will be including different types of financial
statements along with the importance of accounting ratios in financial management. Also, with
the help of case study the financial analysis is done with the help of different financial statements
as well as the business processes that the company my use to improve the financial performance.
Financial Management and Its Importance
Financial management can be defined as an practice of designing, developing and
executing a business plan in order to check that all departments are integrated and are working
on right track. It basically deals with the concept of dealing and analysing monetary and
investment related activities that helps the management of an organization to take necessary
decision in context with goals and objectives(Abdel-Basset and et. al., 2020) The financial tasks
are usually performed by the accounting department of the company. The important elements
which are required to carry business's finance functions are strategic planning , organizing,
directing and controlling of the financial activities to tackle the fiscal management of the
company.
Financial management is considered as an important component of any organization as it
majorly helps it to perform financial planning so that the acquisition of the funds can be done
efficiently. The application of financial management provides economic stability to an
organization as it focuses on improvement of profitability resulting into the increment in the
overall value of organization. It also play an effective role in utilizing and allocating funds in
such a way that helps in having a better control over company's finances. It also helps the finance
managers to make critical financial decisions which are directly integrated with the organization
end goal or objective.

Financial Statements & Use of Ratios
Financial statements can be defined as the written declaration of the records that
communicates the business activities and the overall financial performance of the business(Wei
and et. al., 2019).. They are also audited by different parties such as government agencies,
accountants etc for the purpose of ensuring accuracy. Financial statements includes different
statements such as Balance sheet, Income statement and cash flow statement. The explanation of
these financial statements is mentioned below:
 Balance Sheet: It is one of the most important type of financial statement that majorly
includes all the assets and liabilities related to the company. It also includes shareholders
equity which helps understanding and analyzing the financial health of the business.
Equation: Assets=(Liabilities+Owner's Fund)
 Income Statement: It is a financial statement that communicates the company's incomes
and expenditures. It also conveys the profitability levels of the company for a give period
of time(Chen, Chiu and Chung, 2021). The major aim of income statement is to provide
the summary of all the revenues, expenses, incomes and earnings on the shares. Also, it
usually shows the data of two to three years for the purpose of comparison.

Equation: Net Income=(Revenue-Expenses)
 Cash Flow Statements: It is a type of financial statement which helps the company in
measuring the capability of the company to generate cash for the purpose of paying all its
debt obligations and meet all its expenditures(Matiza, 2019). It is considered as an
valuable measure which can analyze the profitability and strength of the company in the
long run. Also, cash flow statement is divided into three sections namely, operating,
investing.
Accounting Ratios can be defined as the comparison of financial data of two or more
years for the purpose of analyzing the financial statements of the company. It is considered as

one of the most effective tools to understand and analyze the profitability and financial condition
of the company by the stakeholders. It helps in understanding the business performance in
comparison to all of its competitors(Chen and Komal, 2018). The major objective of calculating
accounting ratios is to measure the relationship between two or more components of financial
statements in order to find out the results effectively to make certain important financial
decisions. Accounting ratios are divided into different types such as liquidity ratios, profitability
ratios, solvency ratios, turnover ratios and earning ratios.
Accounting rations are categorized into different categories and they are explained
below:
 Profitability Ratios: These are those ratios which helps in analysing in the company's
ability to earn profits out of its business operations with the help of balance sheet and
shareholders equity.
 Liquidity Ratios: These are those ratios that helps the company in order to analyse the
company's capacity to meet out its short term obligations. It is important for the company
to have the capacity to pay off all the current liabilities
 Efficiency Ratios: These ratios are the one's that helps in measuring the ability of the
company on order to generate revenue with the use of its assets. These ratios are mainly
used the banking firms.
Business Performance Review
A business performance review is considered as an important form of formal assessment
which includes the evaluation of the employee work performance which helps in identifying the
strengths and weaknesses(Woo, Kang and Lee, 2018)
For the purpose of evaluation, data was provided in the business review template in the
appendix section of this file and it has has been observed that :
Business Profitability:
In the year 2016, the profitability increased by 127% as compared to the year 2015. this
states that the business is performing fairly well with high level efficiency. The gross profit
margin and the net profit margin of the company are 42.8% and 22.7% respectively which is
clearly indicating that the company is generating good amount of profits indicating good
financial performance. Please checkout appendix section for the calculations.
Business Liquidity:

Current Ratios and quick ratios were calculated in order to assess the company's liquidity.
From the findings it can be clearly stated that the company is able to meet its short term financial
obligations. The company is considered as solvent as its current assets amount is higher than that
of the current liabilities. Also the quick ratio of the company states that the company is highly
liquid to meet its liabilities. The customer satisfaction has also increased satisfactorily helping in
providing support to the growth of the company. Also, it has been seen that the company is not
holding huge amount of cash but it has invested that amount efficiently to gain future returns.
Please checkout appendix section for the calculations.
Business Efficiency:
the company is performing well as it has invested a good amount out of its earning and
the owners are also receiving high returns on the investments. In case of replacing the stock, the
company will be requiring 105 days in order to perform the comparison. Also, 72 days are
required to pay back to the creditors and 54 days for getting back from the customers. The cash
flow situation of the company is also considered as effective. Please checkout appendix section
for the calculations.
Ways to Improve Business Performance
Every business requires strategies and techniques for the purpose of improving the
business performance. Although, the business is already performing fairly well but still there are
some areas and scopes where the company can perform well and excel in order to reach higher
levels of efficiency.
Marketing Strategy
Marketing strategies are considered as an important element of the business survival of
the business in long run. The company ned to effectively assess the marketing mix that consists
product, price, place, promotion, process, people, physical evidence. The company should focus
on the advertising and digital marketing campaigns which will help the company to increase the
profitability margins(Khan, Islam and Akbar, 2021) . The company should also focus on the
bringing innovativeness in the products and services which will help in providing the
competitive advantage to the company. Therefore, it is highly important for any business to have
an efficient financial performance because ultimately it will portray how effectively a firm can

use its assets in order to generate high level of revenues and how good is the financial health of
the business.
Other Strategies
A business organization can also use other different processes in order to improve its
financial performance explained below:
 Debt Consolidation: It is a technique which can be used to over multiple debts by taking a
loan and consolidating it into larger debt. This technique aims at avoiding the risk of
taking multiple debts which can led to higher interest rates and legal issues as well.
Therefore, this technique help in optimizing the the business financial performance.
 Professional help: The company can also rely on the professional help for the purpose of
improving the financial performance of the business(Mnif Sellami and Gafsi, 2019).. An
accountant or a business adviser can help in improving the cash flow of the business.
Therefore, in hard situation consulting a professional is considered as a good option.
 Minimize overhead costs: The overhead costs are considered as the important costs which
helps a business organization to run smoothly with high level efficiency. These are the
operational costs which do not bring any return on the investments made. So, it is very
important for the business reduce such type of overhead cost which ca help in improving
the cash flow and ensuring better financial stability.
Conclusion
From the above report, it has been concluded that financial management is considered as
one of the most important element of any business organization. It majorly helps in the
organizational financial planning in order to achieve the objectives. The application of financial
management helps in establishing economic stability in the organization. Financial records in
any organization are established with the help of different financial statements which ultimately
help in making major financial decision. Also, with the help of accounting ratios a company can
analyse the financial position of the company and make relevant decision where ever needed.
Along with this, the company can use various processes like debt consolidation, minimizing
overhead costs, liquidating assets etc can help the business organization to improve the business
performance. Therefore, considering financial management as an essential part of the business
helps the business to grow and achieve success.

References
Books & Journals
Abdel-Basset, M. and et. al., 2020. A novel decision-making model for sustainable supply chain
finance under uncertainty environment. Journal of Cleaner Production, 269. p.122324.
Wei, G. and et. al., 2019. Some q‐rung orthopair fuzzy maclaurin symmetric mean operators and
their applications to potential evaluation of emerging technology
commercialization. International Journal of Intelligent Systems, 34(1). pp.50-81.
Chen, Y., Chiu, J. and Chung, H., 2021. Givers or Receivers? Return and volatility spillovers
between Fintech and the Traditional Financial Industry. Finance Research Letters,
p.102458.
Matiza, T., 2019. Blended finance: a primer for FDI-led tourism growth in sub-Saharan
Africa?. Africagrowth Agenda, 16(1). pp.4-7.
Chen, S. and Komal, B., 2018. Audit committee financial expertise and earnings quality: A meta-
analysis. Journal of Business Research, 84. pp.253-270.
Woo, Y. S., Kang, M. and Lee, H. Y., 2018. The cost of debt and the characteristics of audit
firms. Managerial Finance.
Khan, M. A., Islam, M. A. and Akbar, U., 2021. Do economic freedom matters for finance in
developing economies: A panel threshold analysis. Applied Economics Letters, 28(10).
pp.840-843.
Mnif Sellami, Y. and Gafsi, Y., 2019. Institutional and economic factors affecting the adoption
of international public sector accounting standards. International Journal of Public
Administration, 42(2). pp.119-131.

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
£’000
2015
£’000
Change
%
Turnover (continuing operations) 189,711 179,587 +5.6%
Profit for the financial year 18,987 127%
Shareholder’s equity 83802 63,057 +32.9%
Current assets as % of current liabilities 222,4 % 304% -82%
Customer satisfaction 4.5 4.1 +10%
Average number of employees 649 618 +5%
Turnover from continuing operations increased by 5.6% during the year, primarily due to the acquisition of the
Extinguishers business on 1 May 2015, which made a full years contribution in 2016.
Gross Profit =
Net Profit = £43057
Net Profit increased in 2016 by 22.7%% 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 the financial year= 43057- 18987 = 24,070
(in Percentage )= 24070/18987*100= 127%
Shareholder's Equity= 63057*32.9% = 20745
63057+20745 = 83,802
Gross Profit = Turnover
- Direct Cost (Material, Labour, Production)
= 1,89,711-1,08,586
= 81,125
Gross Profit Margin = Gross Profit/Sales*100

= 81,125/1,89,711*100
= 42.8 %
Net Profit = Gross profit- Net operating expenses
= 81,125-38,068= 43057
Net Profit Margin= Net Profit/ Sales
= 43057/18971 = 0.2226*100= 22.7%
Current Ratio = Current Assets/ Current Liabilities
= 84,349/37,928=2.2239*100= 2.22:1
Quick Ratio = Current Asset- Stock / Current Liabilities
= 84,349-28,571/37,928= 1.47:1
Asset Turnover Ratio= Turnover/ Net Assets
= 1,89,711/83,815= 2.26:1
Stock Turnover= Stock/Cost of sales*365
= 28,571/98,975*365= 105.36
Receivable Days Ratio= Debtors/Turnover*365
= 26367/179587*365= 53.58
Payable Days Ratios= Trade Credit/ Cost of Sales*365
= 19493/98975*365= 71.88
Notes to the financial statements
at 31 December 2016
3. Turnover
Turnover recognised in the income statement is analysed as follows. 2016 2015
£000 £000
Sale of goods 189,711 179,587
Turnover from continuing operations 189,711 179,587
4. Cost of Sales
2016 2015

£000 £000
Material Cost 42,597 38.845
Production Cost 15,231 12,845
Labour Cost 50,758 47,285
Cost of Sales 108,586 98,975
5. Overheads
2016 2015
£000 £000
Administrative Expenses 13,751 20,251
Other Operating Costs 22,374 34,293
Interest 1,943 7,081
Total Overheads 38,068 61,625