Financial Management: Financial Statement Analysis & Significance

This report explores the integral role of financial management in an entity, emphasizing its significance in planning, accumulating, controlling, and checking profit-making activities. It discusses the importance of financial planning, resource protection, and asset circulation for achieving business goals. The report also elucidates the types of financial statements, including the Profit and Loss Statement, Balance Sheet, and Statement of Cash Flow, highlighting the role of ratio analysis in assessing an entity's performance. A practical problem is presented involving the preparation of these statements and the calculation of profitability, efficiency, and liquidity ratios. The analysis leads to recommendations focused on controlling operating expenses, monitoring sales, and managing working capital to enhance the entity's financial health and overall success.

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Contents
INTRODUCTION...........................................................................................................................3
Task..................................................................................................................................................3
Question 1: Financial Management as integral part of an entity and its significance............3
Question 2: Types of financial statements along with Usage of Ratios in them as enlightened
................................................................................................................................................5
Question 3:..............................................................................................................................7
1.Using the template the following data is filled:...................................................................7
2.Profit and loss Account.......................................................................................................7
3.Statement showing Balance Sheet.......................................................................................7
4. Calculate the Productivity, Proficiency and liquidity ratio together with explanation:.....7
Question 4:............................................................................................................................10
Recommendation..................................................................................................................10
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12
APPENDIX....................................................................................................................................13

INTRODUCTION
Finance mangement is a process that deals with how the finance should be organised within the
organisation considering resources and funds constraint in the organisation. Procurement of
funds through multiple sources and consuming the same is a significant business activity for an
enterprise (Andrei, Panait, and Voica, 2018). With proper usage and application of financial
management in an entity, there can be operative & resourceful deployment of organisations
funds. The enterprise can successfully accomplish the targets they set for their business through
this planning tool. This project showcase why implementation of financial management in an
entity is resourceful along with how usage of ratios plays a significant factor in these statements.
This report includes practical problem with respect to preparation of profit and loss account,
balance sheet and ratio analysis on the basis of financial figures calculated above after taking
into profitability, liquidity and efficiency of business concern.
Task
Question 1: Financial Management as integral part of an entity and its significance
It can be said that effective handling of the of business organisation by way of planning,
accumulating, controlling and checking the profit-making activities of corporate concern. It is
one of the most important aspects for an enterprise that directly affects the financial status of an
organisation. In order to run or start a successful business unit, one must possess complete
information about the financial management (Brzozowski and Visano, 2020). It is made up of
certain elements which includes financial planning also. Deployment of entity funds with
planned manner can be carried out after identifying the fund requirement of multiple business
units and allocating the same according to their requirement so that production can be increased.
In an organisation finance management is addressed by a finance head called as finance manager
who is responsible for supervising the same. This section of management conducts multiple task
such as setting out structure of equity and debt, division of entity profit into various divisions,
effective and efficient management of concern assets, monetary and other controls on term based
properties etc.
Prominence of financial management: -

Financial management is important for an establishment for preparation and controlling the
monetary firmness so that situation of bankruptcy can be set aside.
 Corporate Development: - Corporate development creates financial stability associated
with the business concern (De Beckker, 2020). It includes taking corrective and quick
action taking into consideration the organisation growth and sustainability in the long
run. It considers critical region of the organisation so that special monitoring can be
established on them which helps in development of an organisation.
 Preservation and Protection of Resources: - It simply means shielding entity’s finance
towards achieving business goals can be achieved. Overspending towards one assignment
and ignoring an under developed project may result into lack of finance for an
establishment as a whole.
 Circulation of assets: One of the efficient technique of managing the finance in that it
provides an effective way to address enterprise needs after taking into account these
inverstments (Hasas Yeganeh, Ebrahimi Sarveolia, and Delavar, 2019). It will ultimately
raise the operating efficiency and effectiveness of business unit by reducing
excessiveness spending on loss making projects or activities.
 Asset Openings: Asset opening will assist an enterprise in generating and creating wealth
that will helpful at the time of merger or acquisitions or amalgamation of organisation
with other business or when an entity is facing funds shortage as and when dissolution
taking place.
 Economic Progression and Consistency: - Proper monetary arrangement of funds results
into consistency and growth in entity products and services. Reliability and trust in
products and services is significant for associates so that they develop their business
reputation. It is vital to monitor unit’s progressions by handling them in a systematic way
so that development of establishment can be created.
 Investment Funds: - Organisation victory lies when they increase their business after
discontinuing their non-productive product and exploring geographical wise with creative
and new product lines so that funds can be utilised optimally. Expansion require capital
investment that ultimately increase capital reserves for a business unit.
 Assessment of Enterprise: It will help in enlarging the area of variety of speculators and
the business concern. The ultimate targets for the business concern is that how they will

improvise their operation so that they production cab be increased. Assessment in an
establishment can be increased with increase in construction or engineering.
Question 2: Types of financial statements along with Usage of Ratios in them as enlightened
The financial accounts are compiled by administration of an organisation that replicates
monetary status of that entity on a particular date. It includes Profitability Statement, Balance
Sheet, Statement of Cash Flow and Supporting Notes at the end.
 Profit and Loss Statement: Revenue report is integral part of final accounts that
indicates expenses & revenue received throughout the year by business concern.
(Karakurum-Ozdemir, Kokkizil, and Uysal, 2019). When expenses are reduced from the
income then net result for the same is profit or loss for entity. They are normally
compiled for a year except for those concern who are traded at stock market whose
statements are prepared on four times a year as required by their respective controllers.
The profit and loss account shows corporation's performance throughout the year. It
shows an organised approach which is initiating from gross profits to net and it arrives
after subtracting all operating cost against the proceeds earned. Statement of profitability
is valuable for a corporate entity to understand multiple ratios for example revenue,
working capital, gearing ratio etc.
 Balance Sheet: Financial position is the combination of assets and liabilities of an
associate. Balance sheet is always prepared on last day of financial year as it addresses
the mix of debt and equity hold by organisation throughout the year. Its significance is
such that according to these statements, entity’s operational efficiency is reflected to their
users and other persons willing to take interest in them. It is divided into various sections
such as current assets, non-current liability, investments, equity, reserves etc. The format
of these valuation statement depends upon the organisation structure and their regulating
authority. In order to prepare them various accounting standards needs to address so that
it gives true picture of an entity.
 Statements of Cash Flow: These statement showcase the flow of cash within the
organisation considering all the business transactions (Kurochkina, Shuvalova, and
Kalinin, 2018). It gives a structure to entity so that they can ascertain amount of cash
routes in an organisation along with payment of outstanding liabilities on due course. In

these statements cash flows are divided into three categories they are operating, investing
and financing activities.
Ratio analysis plays a critical role in addressing the entities output they are producing
throughout the year. They can be used to identify performance variances occurred in different
division of business concern relating to efficiency, productivity, performance and so on. With the
help of ratio analysis, an enterprise can compare their performance with past years along with
comparative analysis with competitor’s performance.
In the business organisation these ratios can be beneficial for the following purposes: -
Ratio analysis is used to compare the entity financial performance with similar organization
working under the same industry so that entity’s position in the market can be judged (Lin,
2019).
1. It helps in analyzing the trend in the financial performance of the company over years.
2. Ratios assist the management of the entity in implementing decisions that are associated with
proposed project.
3. It identifies the performing or non performing business units which require management
attention so that they can contribute in the profits of organization.
4. It builds a strong base in performing evaluations associated with respect to diverse headings
of final accounts such as asset and turnover, capital and fixed assets etc.

Question 3:
1.Using the template the following data is filled:
2.Profit and loss Account.
(Mentioned in Appendix)
3.Statement showing Balance Sheet
(Mentioned in Appendix)
4. Calculate the Productivity, Proficiency and liquidity ratio together with explanation:

 Profitability Ratio: -
They show the enterprise capability to earn a profit with respect to its sales,
operating costs, balance sheet items, and owners' equity (Lo and Liao, 2021). These
financial calculations also show how well the organisation is using their existing
resources to generate profit and value for their shareholders.
Solution of Profitability ratio for the year 2016: -
Interpretation: - After calculating the above statistics it can be construed that business
associate is gaining multiple times profit during the year 2016 which indicates
profitability and competence of an establishment.
 Efficiency Ratio: -
Efficiency and capability of organisation is judged by analysing that how
successfully they are distributing the resources in order to gain maximum output (Peeters,
Rijk, and Hermans, 2018). They are sometimes recognised as activity ratio because its
analysis operational processes of business concern so that assets can be utilised in an
effective manner in order to generate income for an entity.

Calculation of Efficiency ratio for the year 2016: -
Interpretation: After calculating the above figures it can be interpreted that firm’s Current
assets are more than their liability’s that signifies that liquidity position of concern is
better as they are capable of making repayment of their liabilities. Further their turnover
is covering the assets 1.24 times that reflects the financial viability of associates.
 Liquidity ratios: -
Liquidity ratio is a financial ratio helps in determining firm ability for payment of
their commitment as and when due. When this ratio is greater than 1 then it reflects that
firm is able to repay their debts on regular course of interval (Tan and Singaravelloo,
2020). The users of the financial statements are willing to invest their funds or capital in
those concern whose liquidity ratio is better compare to their competitors as it highlights
the credibility of entity.

Calculations of liquidity ratios for year 2016 as under: -
Interpretation: The interpretation for the above calculated figures highlights that
enterprise has preserved sufficient liquidity which is utilised by corporate in meeting their
current commitment they hold during the fiscal year. The above ratio also highlights that
the liquidity position of organisation is stable as these ratios are considered to be
favourable if greater than 1.
Question 4:
Recommendation
After taking into account the above analysis it is recommended to entity that they must
ensure that day to day operating expenses must be controlled to an acceptable level. Further to
increase profitability of enterprise it is important to make sure sales must be constantly monitor
which directly affect turnover ratio of firm and indirectly affect their profits. Expenses which are
incurred before incorporation of business units must be deferred evenly so that it does not make
burden on profit and loss statement in a particular year. It is essential for enterprise to closely
monitor their working capital cycle because when payment is not receiving on due time then
funds of organisation has been blocked for certain period of time. It is important for entity to
find out all idle funds or units laydown in organisations structure so that they can be picked and
places in right blocks that leads to development of the corporation. If organisation implements
above recommendation on regular basis, then they can perform activities actively and smoothly
as placing all processes on a right place generates profits of business concern.

CONCLUSION
On the basis of above report the conclusion can be drawn as financial management plays
a vital and significant role in organisation success. If properly implemented by the management
of business associates than regarded as worth full for an entity. Further this repost highlights
about types of financial statement an organisation prepares in their books of accounts including
ratio analysis of above facts and figures. Ratio analysis is carried out according to template in
order to judge the performance of entity after considering the variance incorporated. At the end
recommendation has been suggested on the basis of interpretation made so far so that they must
be incorporated by concerns accordingly in order to achieve competitive sustainability in
industry they are working.

REFERENCES
Books and Journals
Andrei, J.V., Panait, M. and Voica, C., 2018. Challenges and approaches for the corporate social
responsibility and human resource management in the financial sector. Economics,
Management and Financial Markets. 13(3). pp.415-431.
Brzozowski, M. and Visano, B.S., 2020. “Havin’Money’s not everything, not havin’it is”: The
importance of financial satisfaction for life satisfaction in financially stressed
households. Journal of Happiness Studies. 21(2). pp.573-591.
De Beckker, K., 2020. Financial literacy. Financial education: Current practices and future
challenges, p.11.
Hasas Yeganeh, Y., Ebrahimi Sarveolia, M.H., and Delavar, A., 2019. Importance of Factors
Influencing Intention-to-pay Tax from the Perspective of Tax Payers:(Case Study:
Taxpayers of Iranian National Tax Admission Organization-Tehran). Journal of
Management Accounting and Auditing Knowledge. 8(29). pp.203-214.
Karakurum-Ozdemir, K., Kokkizil, M. and Uysal, G., 2019. Financial literacy in developing
countries. Social Indicators Research. 143(1). pp.325-353.
Kurochkina, I., Shuvalova, E., and Kalinin, I., 2018. About diagnostics of an enterprise financial
condition of the housing and public utilities. In 5th International Multidisciplinary
Scientific Conference on social sciences and arts SGEM 2018 (pp. 3-10).
Lin, P., 2019. Design and implementation of financial accounting information management
system of shipping companies based on ERP. Journal of Coastal Research. 94(SI).
pp.470-474.
Lo, F.Y. and Liao, P.C., 2021. Rethinking financial performance and corporate sustainability:
Perspectives on resources and strategies. Technological Forecasting and Social
Change. 162. p.120346.
Peeters, N., Rijk, K., and Hermans, K., 2018. A systematic literature reviews to identify
successful elements for financial education and counseling in groups. Journal of
Consumer Affairs. 52(2). pp.415-440.
Tan, S. and Singaravelloo, K., 2020. Financial literacy and retirement planning among
government officers in Malaysia. International Journal of Public Administration. 43(6).
pp.486-498.

APPENDIX

The calculation of the missing values has been calculated below: -