Business Finance: Financial Statement Analysis and Performance Review

This report provides a comprehensive analysis of applied business finance, covering the concept and importance of financial management, financial statements, and the use of ratios in financial analysis. It includes a detailed examination of income statements, balance sheets, and cash flow statements, along with their significance in assessing a company's financial health. The report also presents a business review template, demonstrating the calculation and interpretation of profitability, liquidity, and efficiency ratios. Furthermore, it explores practical strategies for improving financial performance, such as lowering expenses, consolidating debts, and recovering outstanding payments. The conclusion emphasizes the critical role of finance in business growth and profitability, highlighting the importance of sound financial management practices for achieving organizational goals and maximizing investor wealth. Students can use this report, contributed to Desklib, as a study aid.

Applied Business
Finance

Table of Contents
INTRODUCTION...........................................................................................................................1
Section 1...........................................................................................................................................1
Concept and importance of financial management.....................................................................1
Section 2...........................................................................................................................................2
Financial statements and use of ratios in financial management................................................2
Section 3 ..........................................................................................................................................4
Business review template............................................................................................................4
Section 4 .........................................................................................................................................8
Ways of improving financial performance.................................................................................8
CONCLUSION................................................................................................................................9
References .....................................................................................................................................10
Appendix .......................................................................................................................................11

INTRODUCTION
In the organisation business finance is the central feature which is associated with finance
and credit employed in the industry. In the organisation finance defines activities dealing with
funds comprising of investment, crediting, banking, saving etc. The need of finance is in every
organisation for the buying of possessions, raw materials, and additional movement of economic
activities. The business finance involves the activities concerning to procurement and saving of
capital funds in order to satisfying the requirements and objectives of financial business
enterprise (Bem, A., and et.al., 2018). The organisation financial performance and position is
determined in a particular time period by involving the preparation of financial accounts and
several others statements. This report covers the topics related to detail discussion of financial
management with its importance and defines the financial statements that supports in financial
stability of organisation. Furthermore, with the help of business review template different
calculation is been shown and ways to improving business performance is also covered in the
report.
Section 1
Concept and importance of financial management
The concept of financial management is an practical branch of overall management
related to the finance functions of the organisation. It is an operating activity of the organisation
accountable for obtaining and effectively utilising of funds for the business operations. For
maximizing firms value it provide base to stakeholders. To carry our the business objectives
efficiently the financial management is concerned with the probability, expenses, cash and credit.
The financial management is concerned with short term working capital related to current assets
and current liabilities. Through the operations the cash is generated and from lenders or investors
the capital is obtained. While concerning to the traditional point of view the financial
management was only related to the collection of funds. From the Modern point of view it is
concerned with the optimum utilisation of funds to carry out the business goals efficiently. The
financial management defines to planing, organizing, directing, and control of the financial
activities for the acquisition and utilization of business funds (Cumming, D., Johan, S. and
Zhang, Y., 2019). The principle of general management is applied to financial resources of the
organisation. The finance executive chooses the distribution of reserves into money-making

undertakings to have security on investments and earning of regular returns. The financial
management ensures regular and adequate supply of funds to the concern and plans complete
capital structure to maintain the balance between equity and debt capital.
Importance of financial management-
 Financial planning- The financial requirement of the business concern is determined
with the help of financial management which leads to take financial planning of concern.
The success of promotion to an enterprise is also achieved.
 Safeguarding and protecting funds- In achieving the organisation goals the financial
management is important in protection of finance. The areas are measured where the
funds are required and in effective way they are allocated for the smooth functioning of
business (Ermakova, E.P., 2020).
 Proper utilization of funds- The appropriate usage and distribution of capitals helps in
improving the operational effectiveness of the corporate establishment. The finance
manager utilizes funds properly for reducing cost of capital which leads to increase in
value of firm.
 Financial decision- The financial management benefits in taking the sound monetary
decision for the corporate which affects the entire business operations of the concerned. It
has the direct relationship with all the departments in the company such as marketing,
production etc.
 Increment in value of firm- The prosperity of depositors and corporate concern
increases with the help of financial management. Ultimately aim of business concern will
achieve the higher profits leading to maximisation of investors wealth as well as nation.
Section 2
Financial statements and use of ratios in financial management
The financial statements are concerning to the monetary reports of recording financial
activities and companies’ entity position. The financial statements are used by the government
agencies, accountants and firms for ensuring the accuracy, tax financing and investing purpose.
The financial performance and position are reflected which is helpful in decision making. It is in
the form of written statement (Grashuis, J. and Su, Y., 2019). The financial statement is the

summarised report of profits earned, cash flow, performance and position in particular time
period usually one fiscal year. The statement is divided into three parts which are as follows-
 Income statement- It is called as income and expense account reflecting company
financial statement by demonstrating the expenses and revenue during a specific period.
The company moneymaking position is shown. All the financial activities are included
over which the business is responsible and organised with the assessment of two to three
years of information. The revenue contains operating and non-operating revenue (Kara,
A., Zhou, H. and Zhou, Y., 2021). The expenses contain primary expenses acquired
through the procedure of activities including cost of goods sold, selling and
administrative expenses. The formula used for its calculation is-
Income = Revenue - Expenses
 Balance sheet- It mentions to the declaration summarising the financial balance and
position of the company involving the assets and liabilities. The balance sheet aids in
identification of in what way assets are financed with liabilities and added wealth is
remunerated. By the end of the year the net worth of corporate is revealed as it is
prepared once in a year. The difference showing between assets and liabilities is called as
net worth. The formula is -
Assets = Liabilities + Shareholders Equity
 Cash flow statement- It defines to a financial statement summarising amount of cash
and cash equivalents having inflow and outflow in the company. This statement displays
in what way the company accomplishes the cash position to recompense its debt
responsibilities. The short-term profitability is determined (Leshchinskii, D. and Maksy,
M.M., 2019). The cash flow statement is separated into three parts encompassing of
operating activities, investing activities and financing activities.
◦ Operating activities- It deals with the daily operations of the company such as
payables, receivables, inventory etc.
◦ Investing activities- It comprises of long-term investments made by firm in diverse
projects, bonds, acquisition of assets etc. It also includes the purchase or sale of assets
and payment of acquisition or mergers.

◦ Financing activities- It includes business actions taken for the fund’s arrangement
from business such as issue of shares, debentures and loans. The payment of interest,
dividend and repayment of stock is included.
Uses of financial ratios in financial management
The external analysts use the financial ration for determining the business aspects which
reflecting profitability, solvency and company liquidity. The financial information is analysed by
using the financial statement of organisation. The company decision on position is improved.
The use of ratio helps in comparing the financial performance to similar firms in the industry for
understanding the company position in the market (Li, M., and et.al., 2020). The usage of ratio
also helps in seeing the trend line in financial performance which helps in predicting future
direction of financial performance. The usage of ration helps ion identifying the degree of
efficiency in the management of assets and liabilities. The financial health and reports are
compared with its competitors. The company is assisted by analysing ration in creating
relationship between different financial statements values.
Section 3
Business review template
The Net Profit for the year 2016, is £ 43,057,000 (2015: £18,987,000)

The business other performance and key financial indicators during the year are as
follows-

 Using Excel producing an income statement for the sample organisation.
This is included in the appendix.
 Using Excel completing the Balance sheet

Using case study information describing the profitability, liquidity and efficiency ratio of
the organisation based on the results of ratio analysis.
 Profitability ratio- These ratios are used to assess business ability to generate earning
relating to revenue which is a class of financial metrics. It helps in determining the how

company generates profit efficiently and shareholders value (Manuel Corcuera, J. and
Schoutens, W., 2018). The higher ratios result in favourable business performance.
From the above analysis it can be said that the company profits are increasing by 22.36%
in 2016 as compare to previous year profit that were 10.57% in 2015. It shows that company is
having growth. Though, the gross profit is slightly declined due to increase in production profit
but net income is still increasing with the great extent.
 Liquidity ratio- It is an significant part of financial metrics helps in determining debtor's
ability wit6hout raising external capital to pay off current debt obligations. It involves
current ratio, quick ratio etc. It is an ability of covering short term obligations and cash
flow.
The firms liquidity position is also quite well. The company can settle down all its short
term liabilities as it holds enough assets. The daily operations can be operated even after paying
all the its current debts as it will be left with some assets.

 Efficiency ratio- It defines how the business use its assets ans liabilities efficiently. It
helps in the calculating turnover of receivables, repayment of liabilities, quantity and
usage of equity etc. It is also called as activity ratio used to measure the company short
term performance (Rehman, S., Khilji, J.A. and Sharif, S., 2021).
As calculated above, in managing inventory company efficiency cannot be determined
until is not compared with the last years results. The ratio of creditor and debtor is good. 96 days
are taken to sale whole stock which turns out to be 3 months. The payment received by the
company is in 51 days, where creditors are settled in 65 days which shows there is no problem
for organisation in satisfying its debts and eventually holds money for the period of 14 days. For
some other purpose such as daily operations the cash can be utilised.
Section 4
Ways of improving financial performance
The finance department has the important role in making the decision for improving the
wealth of the organisation. It is essential for the organisation to assess every aspect of business
and identifying area needed for improvement. There are several ways for improving the financial
performance and position of company-
1. Lowering expenses- In the organisation it is the best way of improving the financial
performance by reducing expenses. In the company every area must be considered and
cheap alternatives for supplies, equipments and services must be discovered. For the
larger expenses the deferred payments can be arranged for keeping the cash availability.

2. Consolidated debts- While seeking to improving business finance it is important to look
at current business debts. If having a significant business debt in the company can be
advantageous to consolidate. It is simple and more economical in refinancing debt into
single payment (Zivari, A and et.al., 2020).
3. Recover outstanding payments- The financial performance and company cash flow is
affected by the unpaid invoices. For such recurring problem, debt collection agency can
be used by regularly reminding debtors of their obligations. The terms must be clear
while making the sales agreements about when the payment is due and terms for overdue
payments.
CONCLUSION
The conclusion can be made that finance is the lifeline of business which helps company
in its growth and profitability. The practices of financial management is a field dealing with
financial decisions involving short and long term goals of the company. The common objective
of the company is to make the arrangement of funds. The financial management helps in
determining the uses of ratios and shows the financial statement which is important for the
knowing the financial health of company. From the business review template various ratios is
been calculated and income, balance sheet is prepared. With this the ways of improving business
financial performance is also explained.