BMP3005: Financial Management Report on Performance Improvement

This report delves into the core concepts of financial management, defining its role in planning, organizing, and controlling financial resources to achieve organizational objectives. It emphasizes the significance of financial planning, safeguarding assets, fund allocation, and financial decision-makin...Read More

Importance of Financial
Management

Contents
INTRODUCTION...........................................................................................................................................3
SECTION 1....................................................................................................................................................3
Concept & importance of financial management....................................................................................3
SECTION 2....................................................................................................................................................5
Difference types for financial statements and use of ratios in financial management............................5
SECTION 3....................................................................................................................................................6
Company’s key finance performance indicators:.....................................................................................6
SECTION 4....................................................................................................................................................8
Discuss the process which business use for improve its financial performance:.....................................8
CONCLUSION.............................................................................................................................................10
REFERENCES..............................................................................................................................................11
APPENDIX..................................................................................................................................................12

INTRODUCTION
The method of planning resources, arranging financial resources, and monitoring financial
operations in order to accomplish an institution's objective is known as financial management.
The majority of an organizational vision will be achieved with the aid of financial management.
Management consultants can have a comprehensive view of their corporate accounting wellbeing
with good financial planning (Dohwe, 2019). This allows the finance manager to include
evidence that aids in the development of a long-term outlook and helps to advise decisions. The
definition and value of financial reporting in the business are taken into consideration. However
apart from that, it evaluates the multiple sort of company statements and the various ratios used
in financial reporting. It has been calculated that the corporation must use any of its ratios in
addition to increasing its financial results, as this aids in the implementation of the company's
goals and targets. Financial ratios are critical for every organisation to meet in addition to
assessing its effectiveness.
SECTION 1
Concept & importance of financial management
Finance is a business's back bone, and it requires a steady influx of revenues to or from the
organisation. The wheels of business will continue to spin rapidly as long as there is money. The
method of planning, organising, overseeing, and reporting an annual business operations is
known as financial accounting. According to Guthman and Dougal, financial administration is
"the process of planning, gathering, administering, and controlling capital used in business." It is
related with the adequate extraction and use of capital.
Importance of financial management
 Financial planning: The importance of financial accounting is financial preparation. It
determines all financial requirements related to a company interest. In the latter stages of
a firm's earnings accounting existence, wealth management partners would still take
recommendations and reasonable steps so rather than worrying. Financial planning seems
to be an important aspect of any sector. Therefore, a corporate accounting planning
receives the most of the praise for its growth.

 Safeguarding: Financial accounting's significance means upholding accounts in order to
achieve the business goals. It is important to determine the positions where funds are
required and allocate them correctly in all places for an organisation to compete
effectively. Large amount on one sector might just have a major influence on the success
of other entities, specifically when they are earnings. It seems to be critical to preserve
your information private and to build wealth (Chinakai, 2019).
 Allocation of funds: The importance of financial accounting in a company is to properly
distribute funds. When properly allocating funding to properties, the company concern's
organizational efficiency improves. Finance experts may minimize corporate expenses
and issue debt predicted for a firm since they use funds efficiently and manages them
carefully.
 Financial decision: The financial decision is the most important aspect of financial
planning. It is impossible to reverse a financial decision based on a market issue. As a
result, the money spent will not be returned if a problem occurs. Financial decisions can
have an effect about the whole company process. Although it has an immediate
partnership with all of a business's divisions for instance manufacturing, ads, rentals,
information technology salaries and so on.
 Valuation of company: The importance of financial accounting in an organisation when it
comes to expanding the number of investors and the size of the company. The most
important aspect of any company is that it can generate optimum profit through increased
productivity. It may be linked to rising demand or spreading into new markets. Any
industry's profitability can be improved with the help of excellent finance and economic
experts (de Castro, Salamat and Tabor, 2020).
 Capital reserves: Whenever a company's earnings climb to greater levels and growth
opportunities emerge, cash has always been conceivable and feasible. The role of
financial accounting in the growth of a firm can be seen in the forms that it expands and
also creates cash deposits in the company's accounting records.
 Ensure the proper use of fund: This also aids in the safe utilization of finances and
ensuring that all funds and services are used within the organisation. This would have the
most efficient means of maintaining efficiency, as well as a slew of other benefits. This

aids in the management of funds in the organisation from varied processes, resulting in
increased productivity.
 Helps in investing the appropriate amount: Financial accounting also aids in maintaining
that everything in the business runs well and that the management's goals are met in the
most efficient manner possible. This allows the boss to make an educated decision on
how to spend in various outlets.
SECTION 2
Difference types for financial statements and use of ratios in financial management
Financial Statements are accounts that explain the financial records of a company over
time, such as properties, debts, securities, revenues and losses, investor contributions, cash flow,
as well as other relevant information. Many policy makers depend on financial reporting as their
primary source for information. That's why the credibility, consistency, and validity of the facts
on these financial reports are so important in accounting and auditing standards.
Income statement: The financial statement shows how the company's profits and expenses have
changed over the decades. The far more prevalent forms of income report is a gross income
reporting, but weekly and nearly fully accounting records are also popular. People will look at
financial statements and then see if companies are profitable and prosperous enough here to fund
their current operations and potential growth. (Vanhanen, 2020).
Balance sheet: The balance sheet is a summary of a company's financial condition past a certain
point in time. The balance sheet shows the assets, obligations, and employees' funds as of a
certain date. In certain cases, the equity at a specific point of the company on a given occasion.
Economic agents will review the balance sheet and see how companies fund capital projects and
operations, while also amount of investment information.
Cash flow statement: The cash flow statement is one of the financial documents that shows the
transfer of an individual's cash over time. This assertion helps users consider how well the
individual's cash is moving. This sentence is divided into three parts. Cash flow from operations,
cash flow from investments, and revenue stream from financial assets are the three types of cash
flow. Cash flow from financial expenses, for particular, allows people to see how much money

an organisation receives from its operations. In particular, the details would be shown based on
the individual's cash flow process. It consists of both directly and indirectly processes.
Statement of changes in equity: The declaration of adjustments in investment is a comparison
of a firm's equity's earliest and latest balance over a budget cycle. It isn't considered a necessary
aspect of the monthly financial reports, but it's the most likely of all the financial statements to be
missed. It is, indeed, a standard feature in audited financial statements. To settle now at closing
ending balance, the statement begins with the starting related and afterwards removes or deducts
elements like earnings quality distributions (Ashrafitabar and Hanafizadeh, 2019).
Use of ratio in financial statement
Comparison: One of the applications of ratio analysis is to equate a company's financial results
to that of related companies in the field in order to determine the company's patent portfolio.
Achieving financial ratios from established rivals and applying them to the company's ratios will
assist team in making competition differences and examining the company's strategic
advantages, capabilities, and vulnerabilities. The details will then be used by management to
make judgments aimed at improving the company's business place.
Use for stakeholders: Outer consumers along with shareholders, banks, customers, borrowers,
and debtors are usually the ones who review and assess financial ratios. They use financial ratios
for their own benefit, such as shareholders evaluating the financial operations using the
profitability ratio, earnings per share ratio, and share price ratio. Much other participants, too,
use financial ratios to equate to prior years or to a competitor in the market. This provides them
an indication of when they will be able to produce number better money at some point and
include them in the strongest quality dividends (Pali, 2019).

SECTION 3
Company’s key finance performance indicators:

SECTION 4
Discuss the process which business use for improve its financial performance:
The determination of ratios in an institution aids in understanding capacity and usefulness while
also determining the company's financial condition. That may also be used by shareholders and
investors to evaluate the quality of a decision. The below is a list of the ratios:
Gross profit
Year 2016 2015
Gross profit 81125 80612
Net sales 189711 179587
GP Ratio 42.76 44.89
Gross profit is a process that alludes to an industry's performance management that can be used
to calculate the company's financial performance and occur in a variety of effects. As per the
figure above, operating profit in 2015 was 44.89, even though it was 42.76 in 2016. This means
that operating profit reduced in 2016, demonstrating that the firm did better in 2015 and was able
to accumulate profits (Nazari, Fathi and Shafie, 2020).
Net profit
Year 2016 2015
Net Profit 45057 18987
Net sales 189711 179587
Net profit ratio 23.750336 10.5725916

Net profit concerned with the comparing the income of the firm and articulated as the net profit
margin which is one of the best variable that reveals the future prosperity of the firm. From the
preceding measurement it is demonstrates and in the year 2015 the ratio is 10 percent and in the
year it is 23.75 percent that also represents a dual improvement in the percent of net benefit. This
is an optimistic development for the enterprise that it is capable of managing its costs and other
revenues in addition to maximizing shareholder value.
Shareholder equity
2016 2015
Shareholder equity 83802 63057
In 2016, the firm's market value rose by 32.9 percent, showed that the company has been doing
well. As an outcome of this growth of the company, its customers have accumulated more
shares, indicating that they have more confidence in the company and expect a high benefits in
the future (Tan, Imam and Babu, 2019).
Current ratio
Year 2016 2015
Current assets as % of current
liability
222% 304%
The current ratio, expressed as a percentage of current debt, corresponds to the current asset's
purpose of converting into cash in a given year as compared to all short - term liabilities. The
proportions according to the above table indicate that in 2015, the figure was 304 percent, and in
2016, the percentage was 222 percent. This shows that the organization is not in a stronger
position in 2016 than it was in 2015, and therefore has a poor degree of liquidity.
Ways to improve financial performance
Increase prices: Although it is true that reducing rates attracts more buyers, in some situations,
the reverse approach is preferable. Any companies have rates that are lower than the market,

possibly because they haven't changed them in the next few months. It could be a smart way to
boost the financial market situation to raise rates while risking too several clients.
Recover outstanding debts: This is imperative for the corporation to ensure that they are able to
make payments and that their functional effectiveness is not hampered. As an outcome, they will
be unable to focus on their areas, diminishing their profitability in the immediate future, which
will be harmful for the organization.
CONCLUSION
As per the above report it has been concluded that financial management is described as the
process of arranging, coordinating, managing, and regulating various financial operations such as
the acquisition and use of a company's funds. The crux of good financial management is the
adaptation of corporate development concepts to the entrepreneur's financial capital.

REFERENCES
Books and Journal
Dohwe, S., 2019. The effectiveness of internal auditing in the financial management of a firm. A
case study of TelOne (Private) Limited (Doctoral dissertation, BUSE).
Chinakai, E., 2019. The Development of an Elderly Personal Financial Management Curriculum
for Working Age Adults in Laung-Neau Sub-district Municipality, Doi Saket District,
Chiang Mai Province. Dhammathas Academic Journal. 19(1). pp.67-78.
de Castro, N., Salamat, L. and Tabor, M., 2020. Financial literacy of young professionals in the
Philippines. EPRA International Journal of Research and Development. 5(3). pp.217-
220.
Vanhanen, J., 2020. Automation of financial management processes by utilizing robotic process
automation: a Finnish banking case.
Ashrafitabar, N. and Hanafizadeh, P., 2019. Valuation of Candidate Projects Financed by
Crowdfunding. Financial Management Strategy. 7(2). pp.33-59.
Pali, Ç. D., 2019. Importance of Risk Management and Risk Management Process.
In Maintaining Financial Stability in Times of Risk and Uncertainty (pp. 157-176). IGI
Global.
Nazari, F., Fathi, Z. and Shafie, H., 2020. Providing a Model for the Impact of Corporate
Governance and Ownership Structure on Innovation. Financial Management Strategy.
Tan, K. L., Imam, S. and Babu, M. M., 2019. The use of information by financial analysts during
a financial crisis. Strategic Change. 28(5). pp.369-379.

APPENDIX
The Net Profit for the year 2016, is €? (2015: £18,987,000).
The Company’s key financial and other performance indicators during the year
were as follows:
2016 2015 Change
E43,057 E18,98
7 I27
Turnover(continuing operations) 189,71
1 179,587 +56%
Profit for the financial year 43,057 18,987 1Z7%
Shareholder's equity 83.80
2 63,057 *32
9%
Current assets as °A of current
liabilities Customer satisfaction
222.4°
6 4.5 304°6
41 -
82°
6
+10
%
Average number pf employees 649 618 +5%
Turnoverfromcontinuingoperationsincreasedby56°fodurin
gtheyear,primarilyduetothe
acquisitionoftheExtinguishersbusinessonMay2015,which
madeafullyearcontributionin 2016.
Gross Profit = 81,126
Net Profit - 43,067

Net Profit increased in 2016 by 127 gA during the year.-
Shareholders' equity increased by 32.9% by 20,745.
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
PLEASE SHOW YOUR WORKING OUT OF EACH OF THESE
CALCULATIONS
Profit for fanatical year %= 43,057-18,987=24,070
24,070 / 18,987= 1,267
x100= 126,77= 127%

shareholders'equity- 63,057 x 32,9%
=20,745
63,057+ 20,745 = 83,802
Gross profit= Turnover- direct cost (material, production, labour)
189,711- 108,586 = 81,125
Gross profit margin= gross profit/ sales x100
81,125 / 189,711= 0,427x100= 42,762= 42,8%
Net profit= gross profit- non operating expenses (administrative, other overheads
and interest)
81,125- 38,068= 43,057
Net profit margin= net profit / sales
43,057 / 189,71= 0,226 x100= 22,69=22,7%
Current assets as % of current liabilities= current assets/ current Iiab
Iities x 100
84,349 / 37,928= 2,22:3x 100= 222,392= 222,4%
Checking 304%-82%- 222%

Current Ratio= current asset/ current liabilities
84,349/37,928 = 2,22
Outck Ratio= current asset- stock/ current t!ab!Iities
84,349- 28,571 = 55,778/ 37,928= 1,47.1
Asset turnover= turnover/netasset
189,711/83,815 =2,26
Stock turnover= stock/cost of sales x 365
28,571/98,975 x365 = 105,36