Comprehensive Analysis of Financial Management and Performance

This report provides a comprehensive overview of financial management, emphasizing its importance in organizational success through planning, controlling, and monitoring financial resources. It details the significance of financial statements, including the cash flow statement, income statement, and balance sheet, in assessing an organization's financial health. The report includes a business review template, an income statement prepared using Excel, and a balance sheet. Furthermore, it uses a case study to explain and interpret key financial ratios such as profitability, efficiency, and liquidity ratios, offering insights into a company's financial position and market performance. Finally, the report explores strategies for businesses to improve their financial performance, including effective marketing strategies, resource allocation, and inventory management. Desklib offers more solved assignments and study resources for students.

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Table of Contents
INTRODUCTION ..........................................................................................................................3
Main Body.......................................................................................................................................3
Section 1...........................................................................................................................................3
Describe the concept of Financial Management and its importance......................................3
Section 2...........................................................................................................................................4
Describe Financial statement and uses of Financial Management.........................................4
Section 3...........................................................................................................................................6
(i) Prepare Business Review Template:.................................................................................6
(ii) Accomplish the Income Statement using excel................................................................6
(iii) Prepare Balance sheet......................................................................................................7
(iv) By using case study explain efficiency ratio, liquidity ratio and profitability ratio of a
company.................................................................................................................................7
Section 4...........................................................................................................................................9
By using the provided case study, Describe the process which business might use to improve
their financial performance.....................................................................................................9
CONCLUSION .............................................................................................................................10
REFERENCES..............................................................................................................................11
Appendix........................................................................................................................................12

INTRODUCTION
Financial Management essential activity in every organisation. This process includes
planing, controlling, monitoring and organizing financial resources in order to achieve
organisational goals. This practice control the financial activities of an organisation which
includes accounting, risk assessment, payment, utilization of funds and procurement of funds.
(Baker, Kumar and Pandey, 2021). In the following report, it explains about the importance of
financial management and its uses in a business organisation. Ratios are calculated in order to
know the actual financial condition of a business. Organisation's performance is compared with
the previous final accounts or with a company which is operating in the same industry and
operating at the same level. By the help of analyses companies are able to know the actual
market condition.
Main Body
Section 1
Describe the concept of Financial Management and its importance.
Financial Management helps an organisation in making plan, direct, control and organize
activities which are mostly related to monetary terms. It helps management in forecasting
regarding the business and also facilitates implementation of management principles. It mainly
focuses on earning profits, increases cash inflows and reducing expenses and losses associated
with the business. It also focuses on the completing and achieving organisational goals. It also
helps in adding value, expand operations and working and also provides innovative ideas for the
smooth functioning of management(Boissay and et.al., 2021).
Importance of Financial Management:
 Growth in profitability of ratio: It basically involves managing of funds and choosing
best plan from the available alternatives. In this business is mainly focused in the
activities which are related to growth and expansion of business.
 Value addition to business: It helps in value addition to the growth of the business which
ultimately results in expansion of business. It helps businesses to find out answers of the
questions such as what actions can be taken, what could be done and how could be done,
which will ultimately help organisation in long run.

 Motivate employees: Financial management helps in determining the actual profit of the
organisation which will help in ascertaining the actual profit derived, that can be
distributed among the shareholder's of a company. It helps employees performing better
than the previous performance(Elliot and et.al., 2020).
 Allocation of scarce resources to their optimal use: It helps in allocating resources to a
place which will yield maximum benefit to the business.
 Minimizing cost: It helps in knowing the activities which causes more expenses. Thus it
helps to reduce the cost by applying better alternatives to it.
Section 2
Describe Financial statement and uses of Financial Management.
Financial Statement helps determining the financial health of an organisation. It
represents a true and fair view of the final accounts of a company. For achieving organisational
goals it is mandatory to check timely the progress of the enterprises. Financial statements are of
three types:
 Cash Flow Statement: It shows the net cash inflows of the organisation. It is mainly
divided into three types of activities namely, Financing activities, operating activities and
investing activities. Operating cash flow includes activities that are related with the
working of the organisation. Investing activity is related with the present investment
which will will yield benefits in the future. Financing activity includes issuing of shares
and debentures, paying dividend, etc.
 Income Statement: It includes expenses and income of an organisation. It mainly
includes Cost of goods sold, operating expenses, sales and non-operating expenses and
income incurred during the course of business. Firstly, expenses are deducted from the
incomes to determine the gross profit. Then, operating expenses are deducted from the
gross profit to ascertain Net Profit.(Henrique, Sobreiro and Kimura, 2019).
 Balance Sheet: It has two sides one shows assets and the other side shows the liabilities
of the business. It is maintained at the end of the year, prices are shown in books on two
basis, one is net of price and the other is showing full price and showing the other
balance on the other side of the balance sheet. Assets are further divided into current
assets and non-current assets and liabilities as current liabilities and non-current

liabilities. Assets side includes building, machinery, debtors and liabilities side includes
provisions, capital, outstanding expenses.
Significance of Financial Management
An Accounting ratio helps in measuring change or in comparing the financial
performance of a business itself or with another firm. Importance is explained as below:
1. Helps in determining profit: Return on equity and return on assets are used to determine
the actual profits earned by an organisation during a period of one year. It gives
knowledge about the money of the investor is used by the organisation in the business.
Net profit and gross profit resembles the expenses are deducted from the revenue of the
organisation(Jain, Walia and Gupta, 2019).
2. Financial risk of a firm: Ratios are used to assess the risk associated with the business. It
is incurred due to the borrowing of an organisation.
3. Planning and Forecasting: Management use ratios in order to make plans for the future
operations of an organisation. Interpretation of ratio helps in knowing the deviation from
the previous final accounts and take measures to overcome the differences. In helps in
setting goals for the future according to the previous records.

Section 3
(i) Prepare Business Review Template:
(ii) Accomplish the Income Statement using excel.
In appendix.

(iii) Prepare Balance sheet.
(iv) By using case study explain efficiency ratio, liquidity ratio and profitability ratio of a
company.
Profitability Ratio: It shows the amount of profit earned by an organisation in respect of
total expenditure of the firm. It shows all the activities in one go, it helps in determining the the
market position and check the financial position of business. Few of profitability ratios are as:
Gross profit margin, return on assets, return on equity(Liao, Yao and Hu, 2020).

Interpretation: From the above calculated ratio it can be derived that profits earned by the
organisation in accordance with the expenses incurred. Gross profit is the portion of profit which
is derived after deducting expenses and Net profit is derived after deducting every expense of
production. GP in the following case is 42.76% and net gain is 22.7%, which shows that the
profitability has decreased by approximately 20% which is a significant amount. Company needs
to decrease their overhead costs that will be able to increase their net profit. Company needs to
check their profits with the others companies as well before coming to any conclusion on their
final accounts.(Tolliver, Keeley and Managi, 2020).
Efficiency Ratio: This helps in determining the accuracy with which a company is
managing its funds, liabilities and assets. It also highlights how much time company takes in
collection from its debtors and how much it takes for the payment of liabilities. This ratio
includes such as receivable turnover ratio, account payable ratio and asset turnover ratio.
Interpretation: From the above ratio it can be interpreted that company takes
approximately 52 days in making payment to the creditors while debtors takes 51 days in order
to make payment to the company. It does not guarantee that the debtor will pay on the 52 days,
its shows an average time within which a debtors pays off its outstanding. It take approximately
3 months for a single rotation of stock of a company. Inventory turnover ratio is 3.8 times. Asset
turnover ratio is 1.23 which means that company is able to generate more sales than its total
assets.
Liquidity Ratio: It explains the capability of a firm in order to pay off its short term liabilities. It
also helps in determining the solvency of a company. This ratio is generally based on current

assets, stocks and current liabilities. This ratio includes Current ratio, quick ratio and acid test
ratio.
Interpretation: The above ratio shows liquid position of a business. Ideal current ratio is 2:1 and
for Quick ratio it is 1:1. In the following case it can be seen that the current ratio is 2.22 which
means that the company can pay more than twice of its existing current liabilities. Quick assets is
calculated after deducting stock from the current assets. This ratio is 1.47 times which means that
the company has enough to pay off its current liabilities(Wardhani and Haryanto, 2020).
Section 4
By using the provided case study, Describe the process which business might use to improve
their financial performance.
Financial Performance: It is a measure through which health of any institution is
determined. It is used to known the financial health of an organisation. It is explained with the
help of certain factors that are ownership, liquidity, size and age. This measure is also affected
by various factors such as solvency, productivity, asset turnover and leverage. There are certain
calculations which are by the manager to check the financial position of a business.
 Net profit of the profit has increased by 126.77%, it is because of the non-operating cost
such as interest and administration expenses have declined over the period of time.
 Shareholder's equity has increased because of the increase in the revenue of the
organisation.
 Customer satisfaction have also increased because of the increased customer support and
working on the feedback of the customers.
 Current ratio of the organisation has also declined by 82% as compared with the pas
years.(Xu, Yuan and Rong, 2022).
Improvements that needs to be considered are:
1. Effective Marketing Strategies: It is applied for the improvement of organisation and
lowering the cost of production. It also helps in utilization of resources which tends to

increase the profits and revenue of the organisation. Digital marketing helps in reducing
the cost of advertising and also provides insights of the interested consumers that can be
converted into customer over a period of time.
2. Allocation of resources: It helps in allocating resources to their best use which will helpd
in increasing productivity of the business concern.
3. Increase in inventory turnover ratio and reduction in inventory would help in fulfilling
the working requirement(Ziolo, 2020).
CONCLUSION
From the above report it can be concluded that fiscal management is one of the essential
part of a business concern. It helps business in allocating cost to their heads. Financial ratios
helps in ascertaining the profitability and efficiency of the management. Few ratios are interpret
that by lowering its operating cost management can increase their Net Profit. At the end some the
strategies are defined that will help the business in improving their productivity by managing the
finance and allocating cost appropriately.

REFERENCES
Books and Journals
Baker, H.K., Kumar, S. and Pandey, N., 2021. Thirty years of the Global Finance Journal: A
bibliometric analysis. Global Finance Journal, 47, p.100492.
Boissay, F. and et.al., 2021. Big techs in finance: on the new nexus between data privacy and
competition. In The Palgrave Handbook of Technological Finance (pp. 855-875).
Palgrave Macmillan, Cham.
Elliot, V.H. and et.al., 2020. Supply chain finance is not for everyone. International Journal of
Physical Distribution & Logistics Management.
Henrique, B.M., Sobreiro, V.A. and Kimura, H., 2019. Literature review: Machine learning
techniques applied to financial market prediction. Expert Systems with
Applications, 124, pp.226-251.
Jain, J., Walia, N. and Gupta, S., 2019. Evaluation of behavioral biases affecting investment
decision making of individual equity investors by fuzzy analytic hierarchy
process. Review of Behavioral Finance.
Liao, G., Yao, D. and Hu, Z., 2020. The spatial effect of the efficiency of regional financial
resource allocation from the perspective of internet finance: evidence from Chinese
provinces. Emerging Markets Finance and Trade, 56(6), pp.1211-1223.
Tolliver, C., Keeley, A.R. and Managi, S., 2020. Drivers of green bond market growth: The
importance of Nationally Determined Contributions to the Paris Agreement and
implications for sustainability. Journal of cleaner production, 244, p.118643.
Wardhani, F.S. and Haryanto, T., 2020. Foreign Direct Investment in Agriculture and Food
Security in Developing Countries. Contemporary Economics, 14(4), pp.510-521.
Xu, N., Yuan, Y. and Rong, Z., 2022. Depressed access to formal finance and the use of credit
card debt in Chinese SMEs. China Economic Review, p.101758.
Ziolo, M. ed., 2020. Finance and Sustainable Development: Designing Sustainable Financial
Systems. Routledge.

Appendix