Business Finance Report: Financial Management, Statements & Ratios

This report provides an analysis of applied business finance, focusing on the importance of financial management, key financial statements, and the application of ratio analysis. It begins by discussing the significance of financial management in maintaining fund supply, ensuring investment returns, and utilizing funds efficiently. The report then describes the main financial statements—balance sheet, income statement, and cash flow statement—and explains how ratios are used to control performance and prepare future plans. A business review template is completed, and an income statement and balance sheet are prepared using Excel. Finally, the report examines the profitability, liquidity, and efficiency of a company using ratio analysis, and discusses the process to improve financial performance. Desklib offers a platform for students to access similar solved assignments and study resources.

Applied Business
Finance

Table of Contents
INTRODUCTION ..........................................................................................................................3
SECTION 1......................................................................................................................................3
Discuss the importance of financial management.......................................................................3
SECTION 2......................................................................................................................................4
Describe main financial statements and discuss the use of ratios in financial management......4
SECTION 3......................................................................................................................................7
By using the template provided...................................................................................................7
Complete the 'Business Review Template'.............................................................................7
Using Excel prepare an income statement..............................................................................8
Prepare balance sheet with the help of Excel.........................................................................9
By using the information discuss about the profitability, liquidity and efficiency of company
by using ratio analysis technique..............................................................................................10
SECTION 4....................................................................................................................................12
Discuss the process to improve the financial performance.......................................................12
CONCLUSION .............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Financial management may be defined as the process of managing different accounting
sources of the organisation by analysing and interpreting the information which is totally related
to the finance and make the strategies in order to attain the goals of firm(Bhuiyan and Roudaki,
2018). The management of finance is done by the finance department where they prepare the
different types of accounts and report by which the performance as well as the position of the
organisation is evaluated. The following report is going to discuss about the significance of the
financial management within the business organisation and the importance of the accounting
statement. This report also discuss about the use of ratios in managing the financial statements
and also present some report which examine the performance of the organisation. In the end the
process of improving the performance has discussed.
SECTION 1
Discuss the importance of financial management
The management of the finance is being considered as one of the most important activity
which are carried out by the financial department of the company. This process comprises of
managing and calculating the expenses, revenues, profits and movement of cash within the
organisation. With the help of this, the monetary resources of the company can be control and
directed in order to achieve the targets of the company. In simple words, the financial
management is basically the process of fulfilling the capital requirement of the firm in order to
become successful(Connolly, and Bank, 2018). The financial management is basically related to
planning of working capital requirement by effectively focusing on the current asset and the
current liabilities. If the finances of the company are manage in a very proper manner then the
long term vision of the company can be formed which assist in increasing the profit and growth.
Importance of Financial management
 Maintaining enough supply of funds- with the help of effective financial management
the supply of fund is maintained within the organisation which assist in operating the
daily operations in a very smooth manner. Along with this, focus can be paid on optimum
debtors as well as creditors turnover ratio through which organisation have the

opportunity to use the cash before making payment to its creditors. It assist in identifying
the different types of sources of capital when the firm required.
 Ensuring good return of investment- financial management also assist in investing the
fund in proper manner so that the fund which is invested by the investor or the
shareholder within the business organisation give them good returns (Wang, 2021). The
financial department of the company find out the different types of investment
opportunities which are less risky and more profitable in nature. Along with this,
financial management also ensure that the funds are not used on wasteful expenditure
which make negative impact on the operations of the company.
 Efficient utilization of funds- fund management is basically the process of applying the
resources judiciously so that this bring profit for the firm. It also assist in identifying all
those asset which not give profit to the firm or need improvement. In addition to this, this
also ensure that the fund which is posses by the business are not invested in any activity
which give losses to the firm(Frimanslund, Kwiatkowski and Oklevik, 2022).
SECTION 2
Describe main financial statements and discuss the use of ratios in financial management.
Financial statements are basically the written documents which includes all the summary
of financial activities which are perform within the business organisation during a particular
accounting year. The end balances of all the expenses, income, asset and liabilities are shown in
these financial statements. The reports are made in a well structured way so that it is easy to use
and understand by the external as well as internal partied of the firm. Following are the financial
statements which are mentioned below: -
 Balance Sheet- this is being considered as one of the most important financial statement
in which asset and liabilities of the company has been shown along with this what
amount of equity are hold by the organisation in an accounting year. The financial
position of the company can be recognized with the help of this statements. This works
on the formula of:-
Assets = Liabilities + Shareholders Equity

From the above equation, it is mandatory that the asset side of the balance sheet must be equal to
the liabilities side. The balance sheet are present by the organisation in horizontal and vertical
form according to the choice and accounting rules of the country in which the company is
working. The liabilities side of the balance sheet are divided into the current liabilities and non
current liabilities and the asset side of the company are divided into the current and non current
asset. The long term asset and liabilities are those which are for more then one year and assist in
running the daily operations(Gąsiorkiewicz, Monkiewicz and Monkiewicz, 2020). On the other
hands the short term are those ones which are not more ten one year and use for the better growth
of the business. Cash, accounts receivables, payables etc. are some of the example.
 Income Statement- income statements may be defied as the summarized written
documents which comprises of all the expenses done as well as the income earned by the
company in a fiscal year. The income statements can be prepared by the organisation
quarterly, monthly or yearly. The basic formula is:
Income = Revenue – Expenses
This statement also have the two part in which the first part totally related to all the
aspects of the manufacturing the goods. With the help of this statement gross profit has been
calculated by subtracting cost of goods sold from sales of the particular period. Then the income
is transferred to the next portion of the statement. This statements shows the net profit which are
earned from all post production activities of the business. Then from the gross profit all the
indirect expense and income has been deducted. Then the balance which is remain call the net
earnings form which dividends has been distributed to the shareholders.
 Cash Flow Statement- this shows the flow of cash within the organisation in a
particular time period. In simple words this shows the brief summary of inflow and
outflow of cash in the firm. The organisations maid this statement in order to know
whether the funds are used in optimised manner and where the fund are used(Hightower
and Farris, 2021). The cash flow is divided into three parts which have been discussed
below: -
◦ Operating activities: -this comprises of all the activities which are done on regular
basis and generate the cash for the business. Cash sales, payments done, cash
received, and many more are comprises in this which are done on the regular basis.

◦ Investing activities- flow of cash through the investing comprises in this. Sale and
purchase of the asset, loan given, change in the values of asst and many more are
some of the example.
◦ Financing activities-this comprises of all the sources which are posse by the firm in
order to run the business in a very effective manner. Issue of share and debentures,
dividend paid, loan from the institution and many more are comprises in this.
All the statement which are discussed above assist the organisation in determining their
competitiveness in the market and also assist in presenting the data to the external as well as
internal community. There are different types of techniques which are used by the organisation
in order to identify their performance but the most important tool are the accounting ratios. The
uses of financial ratios has been discussed below: -
Use of ratios in financial management
Accounting ratios may be defied as the relationship between the different values of the
balance sheet and the different values of the income statement which assist in determining the
position of the firm. These ratios assist the organisation in identifying the efficiency and
profitability(Kemfert and Schmalz, 2019). Along with this, the result which are came from the
ratios are utilized in comparing with the rivals and previous reports. Their are different types of
ratios which are used by the organisation has been mentioned below: -
 Tool for controlling performance- the result which are came form the ratios are used by
the management of the company in setting up the benchmark for the next financial year
or in comparing the performance. The standards which are set by the organisation assist
the employees in improving their actions so that the desired outcome can be attain. Along
with this, these ratios also assist the organisation in identifying all the areas in which they
can be flexible.
 For preparing future plans- these ratios also assist the organisation in identifying and
interpreting all the trends in order to prepare the future plans. If the result which are
came form the ratios are positive then a good image of the company can be create in the
mind of the investor (Mathur, 2018). Along with this, the information from the ratios are
used by the internal user in order for make the plan future growth. For example like, if

the organisation identify that the profitability ratio is reduces because of the over
expenditure on the promotional activities, which are of not worth. So, this expense can be
abort to a particular extent.
SECTION 3
By using the template provided.
Complete the 'Business Review Template'.
Calculations are shown in appendix.

Using Excel prepare an income statement.
This is included in appendix
Prepare balance sheet with the help of Excel.

By using the information discuss about the profitability, liquidity and efficiency of
company by using ratio analysis technique.
Examining the position of firm
 Profitability ratio- this ratio assist the organisation in identifying the profit which are
earned by the organisation in a financial year. The earning can be from investment,
operations shares and many more.

From the above chart it has been analyses that the profitability of the firm in increases.
The gross profit has shown a downfall in the from the previous year but the net profit of the firm
has been increases in the year 2016. The main reason behind this is control in the indirect
expenses.
 Liquidity ratio- this ratio assist the organisation in identifying its ability in order to pay
the debts with the help of short term loans. This ratio ascertain the creditors whether they
have to give loans and advances to the firm or not.
Year 2015 Year 2016
0
5
10
15
20
25
30
35
40
45
50
Gross profit
Net profit

The above graph stated that the liquidity position of the firm is good. The organisation is
able to pay off its debts with the help of short term asset which are posse by the them.
 Efficiency Ratio-this ratio assist the organisation in measuring their capacity in
generating the income through assets which are posse by them. This also ascertain that
how fast company covert its sale into real cash.
From the above graph it has been interpreted that the firm have the enough time to pay to
the supplier because they collect the money form the market fast. This satisfy the supplier as the
company make no delay in payments.
Current Ratio Quick Ratio
0
0.5
1
1.5
2
2.5
Column 1
Debtors Turnover Ratio Creditors turnover ratio
0
10
20
30
40
50
60
70
No. of days

SECTION 4
Discuss the process to improve the financial performance
If the organisation wants to improves their performance in the competitive market then
the accounting ratios plays a very important role(Motta, 2020). These ratios assist the
organisation in enhancing their marketing techniques which further help in increasing the profit
and sale. The finance department of the company perform all these role not only for improving
the financial position of the company but also for improving the net worth of the firm.
CONCLUSION
From the above report it has been concluded that financial management is being
considered as the most important aspect of the organisation as this not only help in planning but
also help in controlling the funds. This report also concluded that financial statements are
prepare by the finance team of the company for analysing their performance. Along with the
different types of ratios are concluded in this report which assist the firm in comparing their
performance from the rivals and form the the previous year.

REFERENCES
Books and Journals
Bhuiyan, M.B.U. and Roudaki, J., 2018. Related party transactions and finance company failure:
New Zealand evidence. Pacific Accounting Review.
Connolly, E. and Bank, J., 2018. Access to small business finance. RBA Bulletin, September,
pp.1-14.
Frimanslund, T., Kwiatkowski, G. and Oklevik, O., 2022. The role of finance in the literature of
entrepreneurial ecosystems. European Planning Studies, pp.1-20.
Gąsiorkiewicz, L., Monkiewicz, J. and Monkiewicz, M., 2020. Technology-driven innovations in
financial services: The rise of alternative finance. Foundations of Management, 12(1),
pp.137-150.
Hightower, S. and Farris, M.T.T., 2021. Leaving A No-Risk 36 Percent Return On The Table:
Supply Chain Finance Opportunities Managing Payables Discounts. Journal of Applied
Business Research (JABR), 37(5), pp.139-150.
Kemfert, C. and Schmalz, S., 2019. Sustainable finance: Political challenges of development and
implementation of framework conditions. Green Finance, 1(3), pp.237-248.
Mathur, P., 2018. Machine Learning Applications Using Python: Cases Studies from Healthcare,
Retail, and Finance. Apress.
Motta, V., 2020. Lack of access to external finance and SME labor productivity: does project
quality matter?. Small Business Economics, 54(1), pp.119-134.
Wang, L., 2021. Construction of Special Program of Artificial Intelligence in Applied
Universities of Finance and Economics. CONVERTER, pp.708-712.