Financial Management: Financial Reports, Analysis, and Improvement

This financial management report delves into the core concepts and importance of financial management, emphasizing its role in ensuring a steady flow of funds and optimal resource utilization. It discusses key financial reports such as the Balance Sheet, Income Statement, Cash Flow Statement, and Statement of Change in Equity, highlighting their significance in managerial decision-making. The report includes a business review template with calculations of various financial elements, evaluating the profitability, liquidity, and efficiency status of a business using relevant ratios. It interprets the results and provides guidance on how the business can improve its performance. The analysis covers the years 2015 and 2016, offering insights into the company's financial health and potential areas for enhancement. Desklib provides access to similar solved assignments and resources for students.

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Table of Contents
INTRODUCTION ..........................................................................................................................3
MAIN BODY...................................................................................................................................3
1. The concept and Importance of Financial Management.........................................................3
2. Discussion related to the main Financial Reports and Use of financial decisions in
Management................................................................................................................................5
3. Using the template provided, calculations of different elements............................................7
Business review Template.....................................................................................................7
Balance sheet:.........................................................................................................................8
Evaluating the profitability, liquidity and efficiency status of the business...........................9
4. Guide how the business can improve its performance..........................................................10
CONCLUSION .............................................................................................................................10
REFERENCES..............................................................................................................................11
APPENDIX....................................................................................................................................12

INTRODUCTION
The term financial management alludes to administrative cycle which is related with the
preparation and control of monetary assets. It is connected with the assortment of assets for the
business. The term monetary administration characterizes the capacities associated with the
administration of monetary assets like preparation, organising,and controlling of monetary funds.
The future systems connected with expansion, diversification, mergers and acquisitions are
determined (Biplob, and Abdullah, 2019). It as money work which incorporates all portion of
corporate movement for both benefit arranged firms and non-benefit firms. The following report
highlights the concept of financial management and provides description of different reports that
are prepared in the business to proper management of the business.
MAIN BODY
1. The concept and Importance of Financial Management
The target of the monetary administration is to guarantee the standard and sufficient stock
of assets, to have ideal usage of assets, arranging of sound capital constructions. The monetary
administration has the significance in the organization as it helps in smooth running of the
business as the money is needed in each stage and to meet the every day expenses. The monetary
administration is significant in giving the coordination to different offices, for example, creation,
advertising and so forth to achieve organisational goals (Carmona, Climent, and Momparler,
2019). In the monetary administration the real factors and figures, spending plan, budget reports
are broke down which helps the organization in taking the choice to have benefit and to limit the
danger.
The corporate money is the subfield of money which guides how place of work financing
sources, capital organizing, bookkeeping and speculation choices. It is worried about the
expanding of investor esteem through long and transient monetary preparation. It includes the
four sorts of corporate financing choice. These are:
 Investment decision- This decision is related to how the capital of the business is
allocated. The two main aspects which are considered in these are evaluation of the
investment factors where the business can spend and the return the business is going to
get after investing in these.

 Financing decision- This decision of the business is related to the when, where and how
the monetary finance of the business are going to be acquired (Coulon, 2020). This is
taken after the investment decision and the debt to equity ratio is determined in this
which is known as capital structure decision.
 Dividend decision- This decision is related to how the profits of the business will be
distributed among the shareholders and how much will the business will retain in the
business for future growth prospects.
 Liquidity decision- The firm liquidity is impacted with the current resource the
executives. It ought to be overseen proficiently to secure the firm against the danger of
indebtedness. The benefit is impacted with the interest in current resources.
Importance of financial management-
For the business, money or cash is the existence blood which requires sound
administration for bringing in cash. The speculation of assets in Fixed resources and working
capital is observed viably with the assistance of monetary administration which has the more
prominent significance.
 Financial planning- It is a significant perspective in the administration as it concludes
each monetary need related with the business concern and punctual arrangement of them.
It likewise helps in the making progress of a venture.
 Safeguarding and protecting funds- The monetary administration is significant in
assurance of the money for accomplishing the hierarchical objectives (Heo, and et.al.,
2020). For the smooth working of business measure the regions where the assets are
required and distributed in the compelling manner.
 Proper utilization of funds- The functional productivity of the business association is
improved with the legitimate use and distribution of assets. The expense of capital is
diminished through using the assets appropriately by finance supervisor and worth of
firm is expanded.
 Financial decision- It helps in taking the sound monetary choice in the business which
influences whole business tasks of the concerned. Since, it has the immediate relationship
with all divisions in the organization, for example, creation, promoting and so forth
 Improvement in profitability- The association profit simply relies upon the viability
and legitimate use of assets. In the association the benefit position is improved with the

assistance of solid monetary control gadgets like monetary control, proportion
examination and cost volume benefit investigation.
 Increases the value of firm- The significance of monetary administration helps in
expanding the abundance of financial backers and the business concern (Hrnjic, Reeb,
and Yeung, 2019). It at last aides in accomplishing greatest benefit which prompts
expansion of financial backers abundance just as country.
2. Discussion related to the main Financial Reports and Use of financial decisions in
Management
There are mainly four type of financial statements which are discussed below:
Balance Sheet: It is one of the main depiction enveloping the amount of different resources,
liabilities and capital. It chips away at the essential equation of -
Assets = Liabilities + Shareholders Equity
The report is isolated into two sections either upward or on a level plane and last sums of
the two sides should coordinate with one another. Resources are the things which are claimed by
firm and is utilized by them for making profits. They are further sub-divided into current and
non-current asstes based on there term of obtaining (Mohammed, and et.al., 2019). Fixed assets
are the ones which are procured by business for long time-frame, typically for over 1 year and
are additionally of excessive cost.
Income Statement: It is the rundown of the multitude of costs and incomes of business in a
specific time span while portraying the consequences of its tasks. This portrays the benefits
produced and misfortunes looked by organization during and toward the finish of its tasks,
because of which it is likewise called benefit and misfortune articulation. The equation utilized
for its estimation is:
Income = Revenue - Expenses
Cash Flow Statement: It is a depiction of development of cash in firm during a bookkeeping
period. This report fills in as a sign of displaying the abilities of business for using its financial
assets by distributing them appropriately. There are three sort of exercises with which it bargains
Operating activities, Investing activities and Financing Activities.
Statement of Change in Equity: It is a compromise report of capital of a firm appearance its
adjusts from starting till end. It's anything but a month to month declaration along these lines, it

is for the most part ready toward the finish of monetary year. The fundamental equation applied
in this is:
Opening Capital + Net Profit – Dividend +/- Other changes = Closing Equity
They by and large includes pay or misfortune, profits, any deal or acquisition of stocks, impacts
because of progress in any earlier blunders or worth of resources (Otekunrin, and et.al., 2018).
The principle reason behind readiness of this assertion is that it helps the outer gatherings and
examiners of monetary reports to perceive the variables behind the adjustment of capital. This
additionally helps in assessing the capacities of firm in using its money and speculation amazing
open doors.
Usage of accounting ratios for the management of finance
They can be characterized as a set assuming measurements that is utilized by
organizations to produce information about its benefit and effectiveness of its business. It makes
connection between the two things of equilibrium and benefit and misfortune account and
deciphers it with the assistance of ideal bases made for them. Results are likewise contrasted
from past reports or and that of the contenders to look at its exhibition from its last years position
or with different firms of same industry. There are different utilizations assuming these
proportions which are talked about underneath:
 For interpreting future trend: Outside clients, for example, financial backers, lenders,
utilize ratios of various years to take their monetary choices by guaging its future patterns
(Potrich, Vieira, and Kirch, 2018). A consistent or great run makes great picture of
association according to these gatherings and propel them to get and proceed with the
business.
 For ascertaining the profitability position: With the assistance of ratios, the board
attempts to assess its capacities in creating pay out of its deals. This likewise helps in
taking different choices like expense cutting, further developing showcasing methods and
so on when these proportions shows defeat patterns, then, at that point, supervisory group
goes inside and out of the purpose for this fall and attempts to address it by making
procedures.

3. Using the template provided, calculations of different elements
Business review Template
The Net Profit for the year 2016 , is £ 43,057,000 (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) 189711 179587 5.60%
Profit for the financial year 43057 18,987 + 126.7 %
Shareholder’s equity 83815 63,057 +32.9%
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 = £ 81.125
Net Profit = £ 43,057
Net Profit increased in 2016 by 126.7 % during the year.
Shareholders’ equity increased by 32.9% by £ 83,815.
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

Balance sheet:

Evaluating the profitability, liquidity and efficiency status of the business.
Profitability ratios- It calculates the ability of firm to generate profits out of its revenue (Yang,
Wang, and Ren, 2019). Higher of these ratios is always good.
Net profit margin= Net Profit/sales
For the year 2016= 43057/189711*100
=22.69%
For the year 2015= 18987/179587*100
=10.57%
Gross profit margin= Net Profit/sales
For the year 2016= 81125/189711*100
=42.76%
For the year 2015= 80612/179587*100
= 44.88%
Interpretation: It is especially from the above ratios that benefits of organization are expanding.
Net profit in Year 2015 was 10.57% which brought to 22.36% up in year 2016. This is a positive
indication of development. However, net benefit has diminished somewhat yet this can be
because of growth in production. Yet net gain has expanded with an extraordinary degree.
Liquidity Ratios- it helps in ascertaining that whether the business is able to satisfy its current
liabilities with the help of short term assets or not (Suhadak, Rahayu, and Handayani, 2019).
Current Ratios= Current Assets/ Current Liabilities
=84,349/37,928
=2.22 : 1
Quick Ratios = Current Assets-stock/ Current Liabilities
=55778/37,928
=1.47 : 1
Interpretation: Liquidity position of firm is additionally very well. Firm has hold over sufficient
resources through which it can settle down the entirety of its current liabilities. Indeed, even
subsequent to paying all its present obligations it will be left for certain resources through which
its day by day activities can be performed.
Efficiency Ratios- It helps in defining the capabilities of firm to work efficiently and managing
them. It also interprets the time in which it can convert its sales into cash.

Stock Turnover ratio= Stock/cost of goods sold*365
=28571/108586*365
=96 days
Debtors Turnover ratio= Debtors/sales*365
=26367/189711*365
=51days
Creditors payment period= Creditors/ cost of goods sold*365
=19493/108586*365
=65days
Interpretation: debtor / creditor turnover ratio is very great. The organization gets
installment in 51 days, though loan bosses are gotten comfortable 65 days which implies
everything is good to go for firm in fulfilling its obligations and equally can hold cash for 14
days. This money can likewise be utilized in a few different purposes like every day tasks.
4. Guide how the business can improve its performance
The business can focus on improving the marketing strategies it uses to market its products and
services in the selling place. The business should also focus on managing the resources it owns
and how they are planning to investing the financial funds. The business should analyse the costs
they are incurring in the business in depth to know where the businesses funds are going and if
they are putting it to optimum use. The business can also improve its debt collection period and
that shall enhance the liquidity position of the business.
CONCLUSION
From the above mentioned report it can be concluded that, a business should deal with its
accounts to prevail in competition. Financial management helps in arranging, putting together
and coordinating the assets in a legitimate and required way. They likewise examines the
consequences of different articulations to perceive the presentation of association and finds a
way different ways to advance its position. Accounting ratios are the main methods for assessing
the outcomes and can be utilized by interior just as outer gatherings.

REFERENCES
Books and Journals
Biplob, H. and Abdullah, M., 2019. The importance of islamic financial literacy for muslims: a
general review. Islam & Civilisational Renewal. 10(1).
Carmona, P., Climent, F. and Momparler, A., 2019. Predicting failure in the US banking sector:
An extreme gradient boosting approach. International Review of Economics &
Finance. 61. pp.304-323.
Coulon, Y., 2020. Profitability and Performance Ratios. In Rational Investing with Ratios (pp.
85-104). Palgrave Pivot, Cham.
Heo, W., and et.al., 2020. Using Artificial Neural Network techniques to improve the description
and prediction of household financial ratios. Journal of Behavioral and Experimental
Finance. 25. p.100273.
Hrnjic, E., Reeb, D.M. and Yeung, B., 2019. Financial decisions, behavioral biases, and
governance in emerging markets. In The Oxford Handbook of Management in Emerging
Markets (p. 161). Oxford University Press.
Mohammed, N.F., and et.al.,2019. Comparison of Liquidity, Solvency, and Profitability
Analyses Using Traditional and Cash Flow Ratios on the MSWG's Top 100
Companies. International Journal of Business & Management Science. 9(2).
Otekunrin, A.O., and et.al., 2018. Profitability Ratios and Market Price of Share of Selected
Firms in Quoted Nigeria Agriculture and Agro-Allied Firms: After adoption of
International Financial Reporting Standard.
Potrich, A.C.G., Vieira, K.M. and Kirch, G., 2018. How well do women do when it comes to
financial literacy? Proposition of an indicator and analysis of gender
differences. Journal of Behavioral and Experimental Finance. 17. pp.28-41.
Suhadak, S., Rahayu, S.M. and Handayani, S.R., 2019. GCG, financial architecture on stock
return, financial performance and corporate value. International Journal of Productivity
and Performance Management.
Yang, Q., Wang, Y. and Ren, Y., 2019. Research on financial risk management model of internet
supply chain based on data science. Cognitive Systems Research. 56. pp.50-55.