Applied Business Finance: Ratio Analysis and Improvement Strategies

This report provides a comprehensive overview of applied business finance, beginning with an explanation of financial management and its significance in business operations. It delves into the components of financial statements, including the balance sheet, income statement, and cash flow statement, and elucidates the use of financial ratios for assessing a company's financial health. The report includes a practical application of these concepts through a business review template, an income statement, and a balance sheet created using Excel. Furthermore, it calculates and analyzes key financial ratios such as profitability, efficiency, and liquidity ratios based on a case study, and provides actionable strategies for enhancing the financial performance of the business, emphasizing the importance of wealth maximization and sustainability. Desklib offers a wealth of resources, including past papers and solved assignments, to support students in mastering these concepts.

Applied Business
Finance

Contents
INTRODUCTION...........................................................................................................................4
SECTION 1.....................................................................................................................................4
Give a brief discussion on the concept of the financial management and its significance..........4
SECTION 2.....................................................................................................................................5
Describe the financial statement and the use of the ratios used in the financial management....5
SECTION 3.....................................................................................................................................7
(i) Complete the Business Review Template...............................................................................7
(ii) Produce the income statement using Excel............................................................................7
(iii) Complete the Balance Sheet using Excel.............................................................................8
SECTION 4.....................................................................................................................................8
By considering the example of the case study, calculate the ratios and analyse how can the
financial performance of the business can be improved..............................................................8
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12
APPENDIX....................................................................................................................................13

INTRODUCTION
The financial management is one of the most important department for running the business
efficiently. For functioning the activities of the organisation, a resources and funds are required
which are managed and allocation by the financial managers to accomplish the objectives of the
company (Alqtish and Abdulal, 2021). In this report, the concept and the role of financial
management is explained. Also the fiscal statements and the utilisation of the monetary ratios in
the fiscal administration. Further, the profits, and the ratios were calculated according to the
given data from the business review template. Moreover, the ratios such as profitability,
efficiency and liquidity are computed and the performance of the firm is analysed. Hence, the
strategies which can be used for the improvement of the performance of company is analysed at
the end.
SECTION 1
Give a brief discussion on the concept of the financial management and its significance.
Financial management is the process of acquiring funds required for the smooth conduct of
an enterprise. Financial management integrates all the management functions for acquisition of
capital. Finance is the life blood for any institution. For each and every activity of business
finance plays a crucial role as finance help to raise the funds for long term investments such as
expansion and diversification of a particular firm.
Importance of Financial management-
Financial management deals with many sub activities which eventually increases the returns
of an organisation. so, significance of financial management can be described as below-
 Decision making- One of the foremost function in an organisation is to takes decisions
regarding various activities either make or buy, long term fund or short term. These all
decisions can be easily taken with the help of financial management (Lulaj, 2021).
 Monitoring- Budget allocates to every department. With the help of controlling, all the
deviations can be find out regarding utilisation of funds.
 Liquidity- Working capital is required to carry out daily operations. liquidity ensures that
firm is having sufficient funds for its operations. Management of finance help to gain the
same.

 Formation of capital structure- Judicious mix of debt and equity results which results
in high value of firm and low cost of capital. Financial management contributes in
increasing value of the firm.
SECTION 2
Describe the financial statement and the use of the ratios used in the financial management.
The financial statement are the assertions which are made by every listed company for
recording the fiscal and the monetary data of the organisation. It is essential for every enterprise
to maintain it (Mukhibad, Jayanto, and Anisykurlillah, 2021). It gives a brief about the economic
position and state about the company. The crucial financial statements are:
1. Balance Sheet: This is also known as the statement of financial position. It is divided
into two heads – assets and liabilities. These are usually prepared at the end of the fiscal
year for determining the monetary health of the company. The assets side of the balance
sheet includes fixed, current and non – current assets in which the machinery, inventory,
investment and the intangible assets comes. In liabilities, the non – current and current
obligations are the creditors, bills payable. Also the shareholder’s funds, borrowing, long
– term debts come under the head of liabilities. It helps in analysing the capacity of the
organisation to acquire new projects or not. It also determined the contingent liabilities
that may arise in future from its assets.
2. Income Statement: It is an essential part of the organisation. As on the basis of this the
other financial statement are being made. It shows the net earning that the gained by the
organisation by fulfilling its objectives. In this the various type of the non - operating
and operating income and expenditures are determined. Considering these the profit is
calculated. These are generally prepared for the one year, but sometimes the interim
statement is also made as per the demand of the company policies. It represents the
profitability of the company by deducting all the expenses from the revenue. It also
assists in calculating the various financial ratios (Chen, Tang, and Wang, 2021).
3. Cash flow statement: In this the inflow and the outflow of the cash done by the
organisation is determined. It can be evaluated by sorting all the expenses based on the
operating, financing and investing activities. In the operating activities, the cash which is

generated for the regular activities of the enterprise is covered. In financial activities, the
flow of the capital in the form of share and debenture, or dividend and the interest which
is received or paid by the organisations to the shareholders. In investing activities, the
purchase and sales of the assets, investment and the collection of the loan for the
generation of cash (Maini, Samson, and LeJemtel, 2018).
Use of the fiscal ratios:
Ratio analysis helps in analysing the financial position of an entity, its profitability and
liquidity. It helps in financial management in the following ways:
1. Communication Source: It is important in presenting the financials to stakeholder which helps
them in understanding huge and complex financial figures of large entities. Sometimes it is
difficult for investors to compare numbers but ratios help the users in understanding present
situation of an enterprise so that they remain invested in company's business.
2.Solvency: An organisation ability to repay its debts on timely basis is determined by their
liquidity, acid test, current ratio etc. that whether such firm is willing to pay its debt within a
reporting period. With the help of ratios, an enterprise continuously analyses their payment cycle
in order to improve them so that their credit worthiness will improve (Ravidà, Barootchi, and
Amo, 2019).
3.Risk identification and timely corrective action: An organisation operates in various business
segment and in different market conditions which involves risk. With the help of ratios, risk and
their types can be analysed and corrective action can be implemented in order to mitigate such
risk. Interest coverage ratio and debt coverage ratio, represent how much a concern is dependent
on external sources to fund their business and their ability to repay them on due dates.

SECTION 3
(i) Complete the Business Review Template.
(ii) Produce the income statement using Excel.
Shown in Appendix.

(iii) Complete the Balance Sheet using Excel.
SECTION 4
By considering the example of the case study, calculate the ratios and analyse how can the
financial performance of the business can be improved.
Profitability Ratios: These ratios are calculated using the different profits and returns
earned by the business. The relationship is measured using the profits of the business and its
revenue and sales. These are used to assess the ability of the business to earn profits in the given
time and measure how much profits are eaten up the different costs of the business which are
operating and non-operating costs of the business (Egginton and McCumber, 2019). Following
are the calculations related to the business of their profit margins and interpretation related to
same.

Interpretation: from the above ratios it can be seen that how much profits of the business is
saved in the business after deducting the operating and the non-operating expenses of the
business. The gross profit margin of the business is calculated to be 42.76 % and the net profit
margin which is achieved is 22.7 % this shows that the after deducting the operating expenses
from the sales only 42% of the profit is retained in the business. And 20 % of the further profit is
achieved after deducting the non-operating expenses of the business. Company is recommended
to make sure of the ways by which it can reduce its overhead costs and try to make its profit
margin increased.
 Efficiency Ratios: This ratio of the business is calculated to check the efficiency position
of the business. The assets and the liabilities of the business are interpreted in these ratios
to see how efficient the operations of the business are. Following is the calculation of
different efficiency ratios with their interpretations.
Interpretation: From the above calculations it can be interpreted that the business is not good in
its efficiency. It is taking somewhat equal time in collecting the debts from its debtors and
extending these amounts to its creditors. The asset turnover of the business shows that the
business is making enough sales from the assets which the business holds.
 Liquidity Ratio: This ratio of the business shows the liquidity position of the business
and how the business is solvent. Following are the ratios and interpretation of same.

Interpretation: The ideal current ratio is 2:1 and the quick ratio is 1:1. from this it can be seen
that the business has above current and quick ratio compared to the ideal ratios which shows
business is in good liquidity position.
Improvement of financial performance:
The financial productivity of the organisation is measured by the ratios which are
calculated above. From this the investors can take the decisions and make a choice of investment
based on the profitability, solvency and effectiveness. It is beneficial for the company as well as
it can take the future measures by forecasting the probable situation the business might face due
to the monetary suffering. So, it is very essential for the enterprise to compute the ratios and
analyse the economic health of the company (Hamid and Loke, 2021). The maximisation of the
wealth is very important as through this the sustainability of the organisation can be determined
which is dependent on the profits.
The measure that can be taken for the improvement of the monetary position of the
company is to completed the need of the business. It can be done by promoting the
methodologies and by investigating the strategies that can be used by the management.
It can focus on the Proportion examination helps in breaking down the monetary place of
a substance, its benefit and liquidity.
It can concentrate on additional fostering its publicizing techniques to draw more
customers towards it. It will enhance its client base alongside generating the revenue. On the
other hand, it will take way the earnings of the undertaking. This will put an impact in the assets
of firm as obligation in liberality.
The decisions taken by department of finance accepts a significant part in working away at
the sufficiency of association. All of the expenses ought to be seen all around and should be
bankrupt down that whether or not a particular expense justifies achieving. Methodology can be
made to crash each and every wasteful use. Assets, which are of not use or have not been used
from long time and even won't be used in long future, can be sold out. As depreciation on

property will overall reduce last advantages which hampers the show visual of firm (Mestry,
2018).
CONCLUSION
It can be summarised by the above report, that financial accounting is a crucial and a very
essential part of any business organisation. It will help the management in allocating the fund
properly in the areas which are useful for the growth and development of the organisation. The
concept of the financial management has made it clear that the role of is mainly used in taking
the important decisions. It will help in forecasting the business situation and get prepared in
facing of any crisis comes in the organisation. Further the ratio which can be used in the financial
management are elaborated which will help in analysing the monetary health of the company and
the comparative analysis can also be performed on this basis. Moreover, the strategies of
improving the performance is also discussed.

REFERENCES
Books and Journals
Alqtish, A. and Abdulal, B., 2021. THE EFFECT OF ACCOUNTING OF EXCHANGE RATE
FLUCTUATIONS IN THE LIGHT OF SYRIAN CRISIS ON THE RESULTS OF
FINANCIAL STATEMENTS OF PRIVATE BANKS IN SYRIA. Academy of
Accounting and Financial Studies Journal, 25, pp.1-28.
Chen, Y., Tang, Y. and Wang, H., 2021. Quantification of ATP in cell by fluorescence
spectroscopy based on generalized ratio quantitative analysis model. Spectrochimica
Acta Part A: Molecular and Biomolecular Spectroscopy, 263, p.120170.
Egginton, J.F. and McCumber, W.R., 2019. Executive network centrality and stock
liquidity. Financial Management. 48(3). pp.849-871.
Hamid, F.S. and Loke, Y.J., 2021. Financial literacy, money management skill and credit card
repayments. International Journal of Consumer Studies. 45(2). pp.235-247.
Lulaj, E., 2021. Accounting, Reforms and Budget Responsibilities in the Financial
Statements. Accounting & Finance/Oblik i Finansi, (91).
Maini, A., Samson, R. and LeJemtel, T., 2018. Instantaneous wave-free ratio as an alternative to
fractional flow reserve in assessment of moderate coronary stenoses: A meta-analysis of
diagnostic accuracy studies. Cardiovascular Revascularization Medicine, 19(5), pp.613-
620.
Mestry, R., 2018. The role of governing bodies in the management of financial resources in
South African no-fee public schools. Educational Management Administration &
Leadership. 46(3). pp.385-400.
Mukhibad, H., Jayanto, P.Y. and Anisykurlillah, I., 2021. ISLAMIC CORPORATE
GOVERNANCE AND FINANCIAL STATEMENTS FRAUD: A STUDY OF
ISLAMIC BANKS. Journal of Governance and Regulation/Volume, 10(2).
Ravidà, A., Barootchi, L. and Amo, F.S.L.D., 2019. The Effect of Crown-to-Implant Ratio on the
Clinical Outcomes of Dental Implants: A Systematic Review. International Journal of
Oral & Maxillofacial Implants. 34(5).

APPENDIX
Income Statement: