BSc Business Management: Financial Management and Performance Report

This report delves into the core concepts of financial management, emphasizing its critical role in organizational success. It defines financial management as the strategic process of handling an organization's finances, encompassing financing, investing, and dividend distribution. The report examines the importance of financial management, highlighting its role in fund arrangement, utilization, productivity enhancement, and cost reduction. It then discusses key financial statements, including the income statement, balance sheet, cash flow statement, and statement of changes in equity, and explains the use of financial ratios for assessing liquidity, activity, profitability, and solvency. The report presents a case study analysis, providing calculations for the Business Review Template, an income statement, and a balance sheet. It analyzes the company's profitability, liquidity, and efficiency using ratio analysis, interpreting the results and suggesting areas for improvement. Finally, the report suggests strategies like standard costing and disposal of unproductive assets to enhance financial performance, emphasizing the importance of profit generation for long-term sustainability.

BSc (Hons) Business Management with
Foundation
BMP3005
Applied Business Finance
The concept and importance of financial
management and the processes
businesses might use to improve their
financial performance
Submitted by:
Name:
ID:
Contents
Introduction p
0

Section 1: Definition and discussion of the concept and
importance of financial management p
Section 2: Description and discussion of the main
financial statements and explain the use of ratios in
financial management
p
Section 3: Using the template provided p-p
i. Completing the Information on the ‘Business Review Template
(Ensure that you display your calculations for this detail)
p
ii. Using Excel producing an Income Statement for the Sample
Organisation (see Case Study). This should be included within
your appendices p
iii. Using Excel completing the Balance Sheet p
iv. Using the Case study information describing the profitability,
liquidity and efficiency of the company based on the results of
ratio analysis p
Section 4: Using examples from the case study describing
and discussing the processes this business might use to
improve their financial performance p
Conclusion p
References
Appendix p
1

Introduction
Financial management is a set of practices where by a team of specialists the finance of an
organization is managed. There are number of actions are imparted but the three realms such
as financing, investing and dividend distribution are the activities which are managed. The
report would be covering sort financial statement associated with the undertaken case study
in attempt to fetch deeper understanding (Walmsley, et. al. 2018)
Section 1: Definition and discussion of the concept and
importance of financial management
Financial management can be articulated as the process of management where finance is kept
in center. Over the time, it is experienced that the modern business texture is having great
need to augment the efficiency of finance due to over-competitive market forms. In such
predicaments the sole way to notch up the notion is by enhancing control on finance which is
carried out in the financial management.
At the same time financial management can be defined as the process where all such actions
are taken which are intended to make the finance more performing or effective to the entiy.
With this respect number of actions are taken which are ultimately intended to boost up
overall performance of the entity.
In other words, this is a broad term which is used to reflect the all course of activities which
are imparted by an entity so can enhance the outcomes. Financial management can be
bifurcated in three parts which are accentuated by financial manager so these three segments
are based on three different activities which are characterized as core activities such as-
 Financing activities
 Investing activities
 Dividend related activities
So it would be a fair position to say that financial management plays great role when it comes
to organizational performance. The importance of financial management is as-
 Financial management brings better loop over arrangements of funds. It is supposed
to be a tough nut for organizations to arrange funds on time. In this field financial
management gives them upper hand and boost up their capacity.
 At once when the funds are arranged then their proper utilization becomes anther
significant point. So to ensure its proper use financial management paves the way
forward.
 It improves productivity factor. As it is seen that if there are disarrangements in term
of finance then the possibility of losing potential is quite higher. With the practice of
financial management this jeopardy can be dealt.
 With a well-structured financial management, the growth of an organization can be
measured with best fits (Sutarno, et. al. 2019)
 Earlier it was supposed that the role of finance management is all about arranging
funds but this idea is no longer there. This is giving wide coverage and making this
action more fruitful to the entity.
 Reduction in cost is also possible. Over the period it is experienced that organizations
with better and suitable financial management policies are those having lower
financial cost.
Section 2: Description and discussion of the main
financial statements and explain the use of ratios in
financial management
2

Financial statements can be defied as the statements which are made to articulate or to
present sort of financial information of an organization. For fulfilment of this aim some
reports are prepared. There are number of such statements which are prepared by
organizations but some salient statements are as-
Statement showing financial performance- This is also known Profit and Loss statement.
This statement is used to show the profit and loss status of an entity. This account reflects
both revenues and expenditures in a particular time frame. And on the basis of them the final
status of profit and loss is shown (Hatefi, 2019)
Statement of financial position- This is also known as balance sheet. This is made on
certain date to show the financial position of an organization. With the help of this statement
both assets and liabilities can be traced. At the same time, some better categories such as
short term, and long term assets, liabilities can also be perceived.
Cash flow statement- It is not enough for an organization to be aware of its profits, losses,
assets and liabilities but there is need to understand position of cash. With the progress of
time it is experienced that the cash is one of the most fluctuating aspect. This statement gives
deeper insights of cash flows.
Change in equity- This is the statement which shows the fluctuations in equity aspect. If in a
certain time frame some changes are imparted in equity, then it becomes inevitable to
perceive those changes. This statement fulfils this aim.
Financial accounting is a dynamic practice. With the passing days some new dimensions are
also taking place. Now there is need to be smart enough and brining hyper control on the use
of finance it is quite handy with the use of financial ratios. These rations are helpful in many
ways and paving the way forward. Their uses are as-
Liquidity ratios- It mainly covers current ratio, quick ratio, super quick ratio etc. these ratios
are helpful in understanding liquidity status of an organization. With the help of liquidity
ratios position of current assets, current liabilities can be understood.
Activity ratios- These ratios give deeper insights of organizational activities. There are some
rations such as debtor turnover ratio, creditor and stock turnover ratio etc. by observing these
better control can be set up on organizational activities.
Profitability ratios- Along with observation of liquidity and activity it is also necessary for
an entity to perceive the aspects of profitability. It gives good understanding of GPR, NPR
etc. which can be used as paradigm for performance augmentation.
Solvency ratios- with the help of these financial ratios. An entity may get deeper insights of
organizational ability of paying its long term debt. This is supposed to be very much
significant since in the present market scenario such notions are quite comprehensive.
These ratios bring ability of making comparison. By using them a good comparison is
possible among different aspects which can be ultimately be used in strategic decision
making. These ratios are used by entities to fulfil their aims and objectives. It gives them
ability to make comparison along with some paradigms. They can compare the organizational
performance with the parameters so betterment can be imparted (Prihartono and Asandimitra,
2018)
Section 3: Description and discussion of the main
financial statements and explain the use of ratios in
financial management
3

Section 3: Using the template provided:
v. Completing the Information on the ‘Business Review Template
(Ensure that you display your calculations for this detail)
2016
£’000
2015
£’000
Change
%
Turnover (continuing operations) 189,711 179,587 +5.6%
Profit for the financial year 43057 18,987 + 126.7 %
Shareholder’s equity 83803 63,057 +32.9%
Current assets as % of current liabilities 54.7 % 304% -82%
Customer satisfaction 4.5 4.1 +10%
Average number of employees 649 618 +5%
Gross Profit = £43%
Net Profit = £23%
Net Profit increased in 2016 by 126.7% during the year.
Shareholders’ equity increased by 32.9% by 83803.
The company’s “quick ratio” (Current Assets (excluding stock) divided by Current Liabilities) is
Current assets= 87400-26400=61000
Current liabilities= 59800
61000/59800
=1.02:1
The company’s “current ratio” (Current Assets divided by Current Liabilities. ) is
=87400/59800
=1.46:1
vi. Using Excel producing an Income Statement for the Sample
Organisation (see Case Study)
This is included within appendix
vii. Using Excel completing the Balance Sheet
2016
Total
£0
Non-Current assets / fixed assets
4

Intangible assets 22,000
Tangible assets 154,400
Investments 15,000
191,400
Current assets/ short term assets (CA)
Stocks 26,400
Trade debtors 32,000
Short term deposits 15,000
Cash at bank and in hand 14,000
87,400
Current liabilities/ short term liabilities (CL)
Bank loans and overdrafts 15,000
Trade creditors 35,000
Other Creditors 1100
Income tax payable 4,200
Other creditors including tax and social security 4,500
59,800
working capital(CA- CL) 27,600
Total assets less current liabilities 219,000
Non-Current Liabilities
Bank loans 30,200
Other Liabilities 16,000
Mortgage 46,200
92,400
Provisions for liabilities 9,200
Net assets 117,400
Capital and reserves
Called up share capital 25,000
Reserves 1400
Retained earnings 91,000
Total equity 117,40
0
viii. Using the Case study information describing the profitability,
liquidity and efficiency of the company based on the results of
ratio analysis
5

Profitability status of the organization-
ratio Outcome
Gross Profit margin ratio 43%
Net Profit margin ratio 23%
Interpretation-
These ratios of the organization are showing its good performance. Since the GPR shows that
the organization has occurred good gross profit as compares to its turnover. The
manufacturing or operational efficiency has been favorable. At the same time this ratio is
going down when it comes to NPR so there is further need to make improvements for
betterment.
Liquidity ratio-
Ratio name Outcome
Current Ratio 2.22
Quick Ratio 1.47
Interpretation-
The performance should not only be analyzed by making great contemplation that the
organization is having good performance in term of its liquidity. As it is known that the
current ratio should be around 1.5:1. Here, the liquidity performance seems to be favorable.
Moreover, quick ratio shows good performance in term of liquidity (Goyal, et. al.2021)
Efficiency ratio-
ratio outcome
Assets turnover ratio Turnover/ Total assets 189711/153647= 1.23
Accounts receivables
collection period
Account receivables/
turnover*365
26367/189711*365
=51 days.
Interpretation-
The organizational performance can be measured with the help of efficiency ratio. Here, it
shows that the entity is having satisfactory performance when it comes to its operational
efficiency. Over the time it is experienced that if there is better ability to convert receivables
into cash then organization may avoid any risk of default. With this respect the performance
of this entity is looking quite appealing.
Section 4: Using examples from the case study describing
and discussing the processes this business might use to
improve their financial performance.
6

The organizational performance is satisfactory yet there is need to bring some better practices in
order to be highly productive and eradiating all the potential troubles which may bring severe
catastrophe to it in the future-
Standard costing- this is the method which might be used in order to reduce or control the cost
factor. As in the case it was found there were issues pertaining to overhead control. This is a tough
nut to crack. So this technique is quite helpful since with the help of standard costing separate
attention can be paid to all material, labor and overhead costs.
Disposal of worthless resources- As it is seen that there are some factors which are making
organization underperformed. So the only way to deal with this problem is to dispose some
unproductive or less productive assets so can enhance the performance (Kuo, 2019)
Transactional strategies- For instance- the organization is supposed to make some drastic
decisions so can boost up its profits. Since profits are nothing but bloodline of any organization. If
an entity is not generating good profits, then it cannot be sustained in the present cut throat
market. Some discount offers, bonus, coupon can be introduced it would be making the walk
simpler and the entity will be able to hike its profitability.
Strong Inventory Management System- There may be a good inventory management
system which can be used since if an entity is not able to control its inventory to the fullest
extent then would not be able to reduce the waste and would also be occurring some
additional costs. As in this case the entity is generating GP of 43% but when it comes to NP
then they are having around 23% so it shows there is rigors need to work on operational
realm. This technique will be helping in that manner (Shim, 2022)
Conclusion
From the report above it can be twigged that the role of financial management is quite higher
in an organization. The report has presented greater insights of the usefulness or importance it
bears. Range of rations and their usefulness had been described. At the same time, the case
study was undertaken to reflect better understanding pertaining financial management.
7

References
Walmsley, T. G., et. al. 2018. Energy Ratio analysis and accounting for renewable and non-
renewable electricity generation: A review. Renewable and Sustainable Energy
Reviews, 98, pp.328-345.
Sutarno, S., et. al. 2019, December. Implementation of Multi-Objective Optimazation on the
Base of Ratio Analysis (MOORA) in Improving Support for Decision on Sales
Location Determination. In Journal of Physics: Conference Series (Vol. 1424, No.
1, p. 012019). IOP Publishing.
Hatefi, M. A., 2019. Indifference threshold-based attribute ratio analysis: A method for
assigning the weights to the attributes in multiple attribute decision
making. Applied Soft Computing, 74, pp.643-651.
Prihartono, M. R. D. and Asandimitra, N., 2018. Analysis factors influencing financial
management behaviour. International Journal of Academic Research in Business
and Social Sciences, 8(8), pp.308-326.
Goyal, K., et. al.2021. Antecedents and consequences of Personal Financial Management
Behavior: a systematic literature review and future research agenda. International
Journal of Bank Marketing.
Kuo, W., 2019. International financial management.
Shim, J. K., 2022. Financial management. Professor of Finance and Accounting Queens
College City University of New York.
Appendix:
Income Statement
2016
Turnover 3 189711
Less cost of sales:
Material Cost 42597
Production Cost 15231
Labor Cost 50758
108586
Gross profit 81125 GP % = 43%
Less Expenses:
8

Administrative expenses 13751
Other operating overheads 22374
Interest 1943
Total Overheads 4 38068
Profit/(loss) for the financial year 43057 NP %= 23%
9