Financial Management Report for Allgood Company Limited (2020)

This finance report, prepared for Allgood Company Limited, delves into the core concepts of financial management and its significance within the organization. The report defines financial management and working capital, highlighting their importance in ensuring the company's financial stability and operational efficiency. It then explores various short-term finance options, including business lines of credit, invoice discounting, and trade creditors, providing insights into their functionalities and suitability. Furthermore, the report outlines four strategic ways to improve profit, such as managing costs, reviewing product offerings, optimizing procurement, and minimizing wastage. The conclusion emphasizes the importance of these financial strategies for making informed decisions and improving future financial performance. This report is a valuable resource for understanding financial management and its practical applications in business.

Finance Report

INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
1. Definition of financial management........................................................................................1
2. Importance of financial management......................................................................................1
3. Definition of working capital...................................................................................................1
4. Importance of working capital.................................................................................................2
5. Short term finance....................................................................................................................2
6. Discusses three short term finance..........................................................................................2
7. Explain four ways to improve profit........................................................................................2
CONCLUSION................................................................................................................................3
REFERENCES................................................................................................................................4

INTRODUCTION
Financial reports are the documents which contain the financial information and which
describe the organization's performance or activities, financial situation and cash flows. The
managers of the company use these financial reports to make assessments on capital distribution.
This assessment covers the several topics such as financial management, working capital, its
importance etc.
MAIN BODY
1. Definition of financial management
Finance seems to be the support system for every company. Financial resources are always
restricted as are most other funds (Financial Management, 2020). From the other hand, the
willingness of organizations is still infinite. For a company such as Allgood, it is also necessary
to handle their finances efficiently. Due to this reason, financial management include the process
of organizing their financial resources for effective performance.
2. Importance of financial management
Financial management is important because it helps in evaluating the weigh or possible
effects of their investment actions on the corporation's income, cash flow and financial position.
The operations of each and every function of the business affect the overall position of the
company and the owner must identify and manage it. Throughout their start-up time frame most
organizations faced losses and unfavourable cash flows. Financial monitoring is extremely
important during that same period. Managers want to ensure sure that company have enough
money on hand to compensate staff and vendors, even if they provide more
cash outflow in comparison to inflow in the business.
3. Definition of working capital
It is the capital needed by businesses to satisfy their day-to-day financial responsibilities
and promises to effectively survive i.e. willingness to pay vendors, paying salaries, repair costs ,
product replenishment etc. The contrast between current assets and current liability is the
working capital which organizations required to run their operations.
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4. Importance of working capital
Working capital is important because the sufficient funds to their business for the use in
their daily operations. Company wouldn't be able to do business without working capital
so management should pay attention on it (Importance of working capital, 2020). Working
capital seems to be something creditors will aim at to determine both the short-term financial
stability of the company as well as its viability.
5. Short term finance
Short-term funding means company borrow finance from short term lenders for a
short period which is less than one year and allows the firm to raise cash for business activities.
It's operational costs which are typically for a smaller sum and entails raising cash through
electronic loans, checking accounts, invoice financing.
6. Discusses three short term finance
There are several types of short term finance which are as follow:
Business line of Credit: It is best suited for needs with short term working capital. In this
method of funding the authorizing bank or financial institution approves a number. Under the
cap of this number, the company will make payment and continue to deposit until consumers
collect payment (Short term sources of Finance, 2020). This functions like a rotating allowance,
and the greatest feature of it is that interest is just paid on the amount used but not on the sum
accepted. The organization has the freedom to spend unpaid sum to save on interest costs. This
means, it is a very cost-effective alternative for funding.
Invoice discounting: Some other source of finance is invoice discounting, where even the
receivable receipts can be reduced in price with banks or other financial institutions or any third
party. Undervaluing invoices ensures that as the payment is due, the bank must pay the entire
amount at the moment of the deduction and receives the payments from customers.
Trade creditors: It is a form of short-term financing that would be very lower down on
the list of priorities. In short, it can only be preferred where there is no more funding available.
The explanation why they do not vote for it is the rate of high interest.
7. Explain four ways to improve profit
In an organization management follow the several ways to improve the profit, similarly
finance officer of Allgood Company limited can follow some ways which are discussed below:
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Manage their cost: In organizational context, reducing cost is not appropriate decision to
improve their profit (Ways to improve Profit, 2018). Managers should focus on managing their
cost on different aspects such as suppliers, production, finance etc. Basically, business need to
buy material from the suppliers who provide them at lower cost, implement effective strategies
to minimise the overall production cost as well as borrow finance from that particular source
which will be cost effective. These are ways to manage their cost or maximise the profit which
should be beneficial for the organizations.
Review their product offers: Another way to improve their profit margin is to review their
product offers through considering their price strategy and target audience. Organization can
increases or decrease the price as per the demand of market and further review their products
offer on the basis of their target audience. This way also improves the overall demand which can
maximise the profit margin of the company.
Buy Goods & services more effectively: Buying more efficiently is among the most
important routes to boost their profitability. Reviewing their supplier base frequently makes
perfect sense and seeing if they can buy the very same raw materials at cheaper or more
efficiently rate. Try to make sure to keep quality of the product, though.
Cut the wastage from business: In order to boost their profit margin, company should
follow the cost cutting strategy where they minimise the use of utility through saving power, get
the best deal with suppliers, and stop the non profitable activities. These ways can improve the
profit margin of the business.
CONCLUSION
From the above discussion it has been observed that financial management and reporting are
essential for organization to understand the availability of financial resources. Further this report
is about the short term finances and some ways to improve the profitability of the company.
These aspects are essential to understand by the company’s management to make their future
strategies accordingly.
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REFERENCES
Online
Financial management. 2020. [Online]. Available Through:
<https://www.toppr.com/guides/business-environment/business-functions/financial-
management/>
Importance of working capital. 2020. [Online]. Available Through:
<https://www.sunbeltmidwest.com/why-is-working-capital-important>
Short term sources of Finance. 2020. [Online]. Available Through:
<https://efinancemanagement.com/sources-of-finance/short-term-finance>
Ways to improve Profit. 2018. [Online]. Available Through:
<https://www.bgateway.com/resources/increase-your-profitability>
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