Applied Business Finance: Financial Performance and Ratio Analysis

This report provides a comprehensive analysis of applied business finance, focusing on financial management principles and the application of ratio analysis to evaluate business performance. It defines financial management and its importance, discusses key financial statements such as the profit and loss statement, balance sheet, and cash flow statement, and explains the use of ratios in financial management. The report includes a practical application of profitability, liquidity, and efficiency ratios using data from a case study, interpreting the results to assess the company's financial health. Furthermore, it explores strategies that the business might employ to enhance its financial performance, such as improving marketing techniques, managing current assets and liabilities, and increasing shareholder equity. The analysis emphasizes the importance of financial ratios in making informed business decisions and improving profitability.

Applied Business
Finance

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK...............................................................................................................................................3
Section 1. Definition and discussion of the concept and importance of financial management.
................................................................................................................................................3
Section 2: Description and discussion of the main financial statements and explain the use of
ratios in financial management...............................................................................................4
Section 3: Using the template provided:................................................................................5
Section 4: Using examples from the case study describing and discussing the processes this
business might use to improve their financial performance.................................................10
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................11

INTRODUCTION
Financial Management is one of the essential feature of the existing business. It make
sure that practices in the company in order to make it operate it smoothly without any kind of
hurdle in the allocation of the capital. The following will include about the importance of the
fiscal management, few of the concepts of the financial statements and the use of the ratios in the
functioning of the firm. It will also cover about the specific ratios like liquidity, efficiency and
profitability by taking the example from the case study with the assistance of the balance sheet as
well as income statements. The performance of the business is also to evaluate the fiscal
performance of the company. In addition to it, it will add about the strategies, the company refers
for bettering the performance of the business company. From the given case study, what are the
elements which can assist in evaluating the performance.
TASK
Section 1. Definition and discussion of the concept and importance of financial management.
Financial management is the method that means to the controlling, planning, organising
and directing as well of the monetary operations of the company. It similarly, integrated by
utilising the principle of the management to the association of the fiscal resources at the time of
having the essential effect in the fiscal management (Yubo, 2021) .
 Maintaining the adequate stock of the assets for the company.
 Appropriate as well as effectual utilisation of the resources.
 Creating secure and authentic company freedoms to give resources.
 Ensuring investors of the company to gain more revenues from their working.
Importance of it is mentioned below briefly:
 Financial Decisions – It supports in the getting the critical cash focused option of the
firm. These decisions are very essential for the firm as one wrong decision can take a
whole firm down. It states about the several risks, option and support in selecting the
level of the acquired assets and capital of investors.
 Profitability – With the appropriate utilisation of the resources and proper maintaining of
the accounts of the company helps in increment of the firm's productivity of the
company. It will make sure in evaluation of the development and efficiency opportunities
of the firm.

 Allocation of the funds- The appropriate allocation of the financial resources which are
given in accordance to the income of the firm. It will better the financial ratios and it will
support in minimising the expenses and enhance the cash flow of the company.
 Economic Stability- It provides the firm an immobility because it states about the
appropriate cash term method which can maintain by the organisational practices, that
can be corrupting for the company and assist managing as well as acquiring more
advantages.
 Capital Structure formation – In order to calculate the need of the investment in the
business growth, the method need to be appropriately formed. Any organisation that
depends on the investment evaluation a firm has and the amount it need to be gain from
the external investors.
Section 2: Description and discussion of the main financial statements and explain the use of
ratios in financial management
Financial statements are the records that are mandatory for all listed firm to keep. It refers
to the monetary practices of the company and these statements gives the fiscal information and
tells about the financial capability of the firm. These statements are necessarily to get it audited
and it is obliged of the fiscal associates. It can be done by the external as well internal sources. It
assures that the statement that are made by the firm which is actually genuine. The statement are
mentioned below briefly:
 Profit and loss statement – It consist of the revenues, incomes, expenditures and the
outstanding as well as accrued incomes and expenses that are in the fiscal year. Similarly
it tells about the transactions that have been made in the time and about the cost which
have been faced by the company in order to make more sales. By minimising the
expenses and salary of the particular time period of the firm as it tells about the new
income of the particular time. (Cuadrado-Ballesteros, Santis, and Bisogno, 2021).
 Statement of the fiscal performance – It is the most essential fiscal averment in the
company as it provides broad knowledge to the consumers of the company about the cash
information. It shows the total assets and liabilities that the firm have and it focused on
paying in the near future. Moreover, it is known as the cash record that is essentially the
initial concern of the company. In other words, it shows about the where the firm's stand
financially.

 Cash flow statements – This report of financial statement tells about the total net inflow
as well as inflow of the company for the specific time. It shows the change in the
monetary values from the operating, investing and fiscal practices for the specific time.
Functional practices tell about the deviations done the existing resources, existing
liabilities, duty cost as well as interest.
Uses of ratios in Financial management:
Monetary ratio evaluation is the process of the managing books that supports the workers
of the company in order to evaluate the fiscal data which have been declared for the financial
year. It is the framework that consist no limit for the growth of the resources of the company. It
supports the higher level management in taking long as well as short term choices for the
company and which categorise the trends of such decisions made by in comparison from the last
year.
 Functional efficiency – It supports in understanding the solvency, performance,
productivity and liquidity of the company. It helps the firm with managing low costs at
more higher skills in order to accomplish the objectives and goals of the company (Gao,
and Han, 2021).
 Comparative Analysis – Comparing of several elements in the books of the monetary
data which is done by relative evaluation of the company. It assesses the fiscal working
of the firm and the base of the structure in order to compare it with several companies
operating in the same sector.
Section 3: Using the template provided:
Completing the Information on the ‘Business Review Template:
Using Excel complete the Balance Sheet :

Using the Case study information describe the profitability, liquidity and efficiency of the
company based on the results of ratio analysis.
1. Profitability Ratio - It belongs to the category of the fiscal parameters which are
utilised to asses firm's capability to make the income during the period in respect to the several
components of the balance sheet and income statement of the financial year from evaluating the
performance of the firm. Few of the essential profitability ratios are net profit margin, gross
profit margins, return on the equity as well as assets.
Interpretation – The above mentioned ratios states about the percentage of income in
case of the income made by considering the non operating and operating costs. Gross profit
margin is the part of the capital which is left from the income (Vicari, 2021). Moreover to this,
net profit margins refers to the percentage of the profits kept after the expense from the income.
Gross income is 42.76% and net income 22.7 that shows that the income is declined by around
20% . So, the organisation requires to lower their overhead costs that is there in earning of more
net profits. It is crucial for the investors in order to compare the income with the other firms of
the similar sector in accordance to analyse the exact position of the company in the industry.
2. Efficiency Ratio – It evaluates the appropriate utilisation of the firm is utilise its
liabilities and assets. It evaluates how immediately the company management to gather
its payment from the consumers and also how much time it takes to clear the debts. It also
helps in measuring the asset as well as turnover of the equity. The main ratios are stock
turnover, asset turnover, receivable turnover and accounts payable turnover ratio.

Interpretation – The average consumers takes around 51 days in order to repay their debts
whereas it takes creditors 52 days in accordance to receive their amount. So, the firm receives as
well as pays their payments and debts almost in the same time. It can also be the drawback for
the firm as because if the days of receivable declines then it might be a issue for the company
and there is slight difference in the days (Loew, and Schröder, 2021). The turnover of the
inventory is around 3.8 which refers to the whole investment of the inventory flows which is
approximately 4 times annually. The overall assets turnover ratio is 1.230 which refers to the
company appropriate working and making sufficient income at the end of the financial year
which is better for their long term growth as well as income.
3. Liquidity Ratio – It show the company's capabilities to pay its obligation of the debts and
also states about the solvency of the firm. These ratios depends on the current liability, current
assets and inventory. The essential ratios are quick ratio and current ratio.
Interpretation – The above mentioned ratio states that the position of the company in terms of
liquidation. A proper current ratio is 2:1 and other quick ratio is 1:1 which can be determined
that the current assets to the ratio of liability is 2.22 that is the firm is solvent and after removing
the inventory the stock from the current assets which is still the asset in the quick ratio is 1.47

that refers to the company has adequate cash in order to repay their liabilities and having it
affects.
Section 4: Using examples from the case study describing and discussing the processes this
business might use to improve their financial performance.
Financial working is a essential element of the commercial organisation as due to looking
at the organisation taking into the act the investors agreed to invest in the firm. So, it is very
essential to take the appropriate financial decisions at the time while collecting the investment
decisions (Matuszak, and Kabaciński, 2021). Hence, the enhancement of the profits is the main
focus since the survival as well as existence of the firm depends on their profits earnings. In
accordance to it, fiscal ratios assist the employees and the companies to make the appropriate
judgement with the help of the calculations done.
 The decline in the current assets to the current liabilities by 82% from the past year, it
refers to the outflow of the money which is more and the firm is losing their liquidity..
 The net income is increased by the 126.77% as due to the non operating expense like
interest, administrative costs has minimised (Neves, and Proença, 2021).
 Satisfaction of the consumers shows that the working is more investment as well as it aid
the success of the company because of the workers ratio of retention which has also
increased.
 Analysing that the equity of the shareholder's is enhancing, executing in a enhancement
in selling of the shares, enhancement of the revenues and decline in the operating costs.
Improvements that can be done are as follows:
 Marketing techniques that can be done for the improvement of the company is to make
the cost go down and working on the effectual usage of the resources that will assist in
gaining more profits. For like, marketing on the social media is the one of the best
method of attaining more consumers.
 Utilisation of the resources in an effectual as well as efficient way that will reduce the
cost and enhance the rates and it will give an outcome in leveraging more profits.
Moreover, it will also enhance the performance as well as efficiency of the company.
 By minimising the inventory and enhancing the turnover of the inventory will tells about
the leverage in the need of the operating investment (Chouaibi, Chouaibi, and Rossi,
2021).

CONCLUSION
From the above report it is concluded that financial management has an essential role in
the working of the company. It supports in the allocation of the capital, profitability of the
company, making appropriate business decisions as well as solvency and many more. Financial
statements provides a brief summary of the firm. It is necessary for the all the business to keep
and get it audited by the respective members externally as well as internally. It shows about the
liabilities, assets, profits, revenues, shareholder's equity, outflow and inflow of the money. Fiscal
ratios assist in evaluating the solvency as well as the efficiency of the company. Therefore, from
the above mentioned ratios of the case study, it is evaluated that the firm is earning more income
which leads to the reduction in the inventory.
REFERENCES
Books and Journals
Yubo, C., 2021. Innovation of enterprise financial management based on machine learning and
artificial intelligence technology. Journal of Intelligent & Fuzzy Systems, (Preprint),
pp.1-12.
Cuadrado-Ballesteros, B., Santis, S. and Bisogno, M., 2021. Public-sector Financial Management
and E-government: The Role Played by Accounting Systems. International Journal of
Public Administration, pp.1-15.
Gao, Y. and Han, L., 2021. Implications of Artificial Intelligence on the Objectives of Auditing
Financial Statements and Ways to Achieve Them. Microprocessors and Microsystems,
p.104036.
Vicari, A., 2021. 8 Accounting and financial statements. In European Company Law (pp. 195-
212). De Gruyter.
Loew, E. and Schröder, M.E., 2021. Disclosure Quality on Covid-19 of European Banks in Half-
Year and Year-End Financial Statements 2020.
Matuszak, P. and Kabaciński, B., 2021. Non-commercial goals and financial performance of
state-owned enterprises–some evidence from the electricity sector in the EU countries.
Journal of Comparative Economics.
Neves, E. and Proença, C., 2021. Intellectual capital and financial performance: evidence from
Portuguese banks. International Journal of Learning and Intellectual Capital, 18(1),
pp.93-108.
Chouaibi, S., Chouaibi, J. and Rossi, M., 2021. ESG and corporate financial performance: the
mediating role of green innovation: UK common law versus Germany civil law.
EuroMed Journal of Business.