Business Finance Report: Financial Management, Statements, and Ratios

This report provides an overview of business finance, emphasizing the critical role of financial management in achieving business goals. It delves into the core functions of financial management, including financial planning, fund procurement, and fund utilization. The report examines the significance of financial statements, such as income statements, balance sheets, and cash flow statements, in assessing a company's financial position and performance. Furthermore, it explores the use of various financial ratios, including net profit ratio, gross profit margin, current ratio, and quick ratio, to evaluate profitability, liquidity, and overall financial health. The analysis of these ratios reveals insights into a company's efficiency and potential areas for improvement, such as cost control and strategic financial decision-making. The report concludes that effective financial management is essential for business success and provides a foundation for informed decision-making, strategic planning, and sustainable growth.

Business Finance

Table of Contents
INTRODUCTION...........................................................................................................................1
SECTION 1......................................................................................................................................1
Financial Management and its Importance..................................................................................1
SECTION 2......................................................................................................................................2
Discussing financial statements and use of ratios........................................................................2
SECTION 3......................................................................................................................................3
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................6
APPENDIX......................................................................................................................................7

INTRODUCTION
Business finance refers to funds and credit utilised by firm in achieving business goals
and objectives. Finance is essential for business from purchasing of raw material to deliver goods
and service to customer (Baloch and et.al, 2019). Business finance include procurement of funds
to utilise it in order to meet business requirement. It provide funds for business working capital
requirement, capital requirement and also provide diversification of funds. This report include
financial management and its importance in business. It also include different financial statement
and use of ratio in financial management.
SECTION 1
Financial Management and its Importance
Financial management is the process of managing finance and activities related to finance
in an organisation (Schönborn and et.al, 2019). It make sure availability of funds to meet daily
business requirement and utilisation of funds in an effective manner. Financial management
include decision making related to investment, purchase of fixed assets, source of funds etc. It
helps in planning, organising and controlling of operations related to finance. It also include
decisions related to return on shareholder's investment. It provide information related to profit,
loss, cost of company, so manager will take decisions accordingly. By it manager will get to
know in which activities cash of business is invested and reduce wastage of funds. Financial
management play important role in the success of business which are as follows:
Financial Planning: Financial management helps in financial planning of business. It
include planning related to source of business, budget, requirement of funds etc. It helps business
to prepare for difficult situation due to change in environment. Financial planning helps business
in achieving predetermined goals of business. It control over cost, expenses, credit and income of
firm (Frizzo-Barker and et.al, 2020).
Procurement of funds: Financial management helps the firm in procurement of funds
from cheaper source of funds suitable to business requirement (Mian and Sufi, 2018). Funds are
important for business to carry out operation in an enterprise. It provide availability of funds
when business has requirement of funds. It is needs for day to day operation, investment, paying
off creditors, purchase of raw material etc.

Utilisation of funds: Financial management helps the manager of company in optimum
utilisation of funds as it allocate funds in way to utilise it effectively. It provide information
related to allocation of funds so the firms know where is funds are invested and helps to reduce
cost of business.
Financial decisions: Financial management helps the manager in taking financial
decision as it will affect functioning of organisation. Impact of financial decision will be on other
department of an enterprise as activity of every department require funds. These decision helps
firm to achieve long term goals of business (Saura, Herráez and Reyes-Menendez, 2019).
Increase profitability: Financial management helps to utilise funds properly to increase
profitability of business. As it control the cost of business through budgetary control, cost
analysis and other tool which improve profitability of business. It also promote saving in an
organisation which decrease the cost of borrowing funds.
SECTION 2
Discussing financial statements and use of ratios
Financial statements refer to the indicators that helps the enterprise to conduct the
reporting period and helps in giving the proper picture of financial position and performance of
the company (Eren, Taspinar and Gokmenoglu, 2019). There are three types of financial
statements available that helps in planning the activities and functions are as follows-
 Income statements- This statement reflects the execution of an project over patch, the
yield of the institution and stimulation that required to achieve that result. This shows the
profit and loss account that justify the fiscal point of company that indicates the elaborate
financial gain and expenses. This is important part to compare the revenues and expenses
from different variations in operating cost, research and technology cost and raw material
which affect the result of company.
 Balance sheet- This is very important part of financial statements that shows the final
position of company by depicting clear and precise picture of management. This includes
the asset and liabilities, equity presented in monetary expression and this need to be show
equal at end of the calculations. There are some equation that display that economical
communicator pictured by the asset are equivalent to the indebtedness and superior. So,

two sides of balance sheet must always be equal as per the fundamental principles that is
Asset = Liabilities.
 Cash flow statements- This analysis refers to the cash receipts and paid out by business
during specific period (Ozili, 2020). This financial statement tells about how much cash
is going out and coming in from three activities such as Operational action, Investment
activities and Financing activities. These types of activities measure and analyse business
efficiency of the business and facilitates the investors and shareholders to evaluate the
results accurately. This helps in taking informed decisions regarding the management and
helps in prevent financial risk. This summarize the cash positions that tells how well
company is able to pay its debt obligation and incurred operating expenses.
Ratios are covering wide variety of calculations and act as indicator top measure profitability
and liquidity of company financials (Fisch, 2019). Following are the use of ratio in financial
management are as follows-
 Helps in comparison- Ratios are very useful in giving comparison outlook to the
company and will help in doing effective actions that required to be taken. These were
critically evaluated by the shareholders, investors to compare the performance of past
years with current years.
 Useful in decision making- They were prepared to provide effective decision making
and helps the management to take appropriate steps in company. As, they provide fruitful
information about the company performance and accordingly analyst draw its
conclusions.
 Supports in forecasting and planning- They were very useful in financial planning and
forecasting ahead activities and functions by calculating number of years. These
facilitates in giving adequate knowledge which is use by shareholders and investor they
formulate their further action of investment. This also gives an idea of financial position
of company to the external who has an interest in the company (Ahamed and Mallick,
2019).
SECTION 3
Net profit ratio: It indicates profitability of an enterprise. It reveals profitability position of
business by deducting all expenses of company from revenue which is generated by sales.

Net income, or essentially net margin, measures the amount of total compensation or income
generated as a level of income. The percentage of net revenue benefits a business organization or
a cookie. Net income is usually reported as a proportion, but it can be treated similarly in a
decimal structure. Net income shows how much of every dollar of income a group collects turns
into profit.
Financial assistants can assess whether an organization's management is reaping the benefits
of its contracts and whether there are operational and administrative costs. For example, an
organization may have income, but if it’s operating costs expand at a faster rate than revenues, its
net income becomes a contract. In a perfect world, lenders need to see a history of growing
margins, which means their net income, is decreasing over time.
Net profit margin = 43057 / 189711 * 100
= 22.69%
Gross profit: This analytical metric enables expression of profit which is earned by an
organization from its core operations. It is evaluated by deducting operational expenses of
business from net sales of a company.
Net profit is the profit that an organization makes after the costs associated with
producing and selling its products or the costs associated with offering its types of support. A net
gain is shown on a group payment definition and can be determined by deducting the cost of
goods sold (COGS) from revenue (contracts). These numbers can be found in the group payment
definition. Net income can be referred to as grants or full payment.
Lenders who are examining the remuneration of private firms should collect the cost and
expense of the items on an unconventional cash register that will include and will not include
estimates of gross profit calculations.
Gross profit margin= 81125 / 189711 * 100
= 42.76%
Current ratio: This liquidity ratio ensures measurement of ability of an enterprise in
analysing its paying capability in context to short term obligations. It incorporates current
liabilities as well as current assets.
The Current ratio is a traditional metric used across the industry to measure an
organization’s momentary liquidity in terms of its achievable assets and future liabilities. As
such, it demonstrates the ability of an organization to generate sufficient funds to meet its

obligations once they have been finalized. It is universally used as a way of measuring an
organization's financial strength.
Although the range of appropriate standard allowances varies according to the specific
type of business, a ratio of 1.5 to 3 is considered valid. An estimate of less than 1 tranche may
indicate liquidity problems for the organization, but the group may not yet face a terminal crisis
if it is ready to receive various types of funding. A proportion greater than 3 can indicate that the
organization is not using its current resources effectively or is not managing its operating capital
appropriately.
Current ratio = Current assets / current liabilities
= 54349 / 37928
= 2.22:1
Quick ratio: It indicates liquidity position of a company for short term and enables
measurement for capability of an organization for payment of its sort term debt. It is also termed
as acid test ratio. An adequate quick ratio should be 1:1. Overall, liquidity ratio gauges liquidity
position of an enterprise.
The quick allowance, also known as the analysis allowance, measures an organization’s
ability to meet all of its specific liabilities as a result of resources that can be immediately
converted into cash. These include cash, cash, attraction protections, instant profitability, and
conventional registration credits.
By the time an organization has a fast percentage less than 1, it does not have mobile
resources to pay the current responsibilities and should be handled with care. Given that the fast
ratio is not significantly lower than the normal ratio, this means that the current resources are
heavily dependent on stocks. The speed limit is more moderate than at present, as it avoids
investments from conventional facilities.
Quick ratio = (Current assets – inventory) / current liabilities
= (84349 – 28571) / 37928
= 1.47: 1
Above ratio analysis interpret that efficiency level of an organization is generating high
level of profitability in relevance to its core operations. It can be stated by analysing margin of
gross profit of an enterprise as business is generating high gross profit margin. While on the
contrary, organization needs to improvise margin of net profit that can be evaluated by reducing

unnecessary expenses. Apart from it, financial position of an enterprise is appropriate. Hence,
company is required to enhance its efficiency by eliminating unnecessary expenditures and
ensuring proper incorporation of financial management which enables company in improvising
proficiency level of business.
CONCLUSION
Above report concludes that financial management can be termed as a lifeline of
business. It indicates practice of managing or handling activities of an organization in relevance
to finance. Finance management enables evaluation of performance level of an organization.
Several functions related to finance are combined in this approach such as, management of fixed
assets, revenue recognition, accounting as well as processing of payment. Further, financial
statements provide an overview for financial position of an entity. Financial statement provides
an overview for financial health of business. it pertains a formal record that showcase financial
activities of an enterprise. It incorporates all information related to finance which are relevant for
business. hence, it can be stated that financial statements help an organization in formulating
effective strategies for enhancing financial status of a firm. In addition to it, computation of
financial statement enables management team of an organization in making well-informed
decisions that ultimately helps business in improvising its efficiency and gaining sustainability as
well as success in longer run. Several types of financial statements are balance sheet, income
statement and cash flow statement. Apart from it, ratio analysis helps an entity in analysing
performance and productivity of an enterprise by evaluating its liquidity, profitability,
operational and efficiency level.

REFERENCES
Books and Journal
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sustainability culture on financial success. Sustainable Production and Consumption. 17.
pp.1-10.
Eren, B. M., Taspinar, N. and Gokmenoglu, K. K., 2019. The impact of financial development
and economic growth on renewable energy consumption: Empirical analysis of
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Ozili, P. K., 2020, January. Financial inclusion research around the world: A review. In Forum
for social economics (pp. 1-23). Routledge.
Fisch, C., 2019. Initial coin offerings (ICOs) to finance new ventures. Journal of Business
Venturing. 34(1). pp.1-22.
Ahamed, M. M. and Mallick, S. K., 2019. Is financial inclusion good for bank stability?
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Frizzo-Barker, J. and et.al, 2020. Blockchain as a disruptive technology for business: A
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Saura, J. R., Herráez, B. R. and Reyes-Menendez, A., 2019. Comparing a traditional approach
for financial Brand Communication Analysis with a Big Data Analytics technique. IEEE
Access. 7. pp.37100-37108.

APPENDIX
Income statement:
Balance sheet:

Business review: