Financial Management: Case Study, Financial Statement Analysis

This report provides a comprehensive analysis of financial management, focusing on its importance and application within a business context. It begins by defining financial management and outlining its significance in achieving organizational success, including guidance, fund acquisition, operational efficiency, and strategic allocation of resources. The report then delves into the core components of financial statements, namely the income statement, balance sheet, and cash flow statement, explaining their roles in summarizing financial transactions and assessing a company's financial position. Furthermore, the report emphasizes the utilization of financial ratios, detailing how they are calculated and used to assess operational efficiency, performance comparison, and strategic decision-making. A case study is presented, including the completion of a business review template, the presentation of income statements and balance sheets, and the calculation of key financial ratios such as profitability, liquidity, and efficiency ratios. Finally, the report concludes with a discussion on actions that can be taken to improve a company's financial position, such as reducing expenditures, increasing profit margins, and implementing effective inventory management systems.

IMPORTANCE OF
FINANCIAL
MANAGEMENT

TABLE OF CONTENTS
MAIN BODY..............................................................................................................................................3
SECTION 1.................................................................................................................................................3
Describing the concept and importance of Financial Management (FM)................................................3
SECTION 2.................................................................................................................................................4
Explaining main financial statements......................................................................................................4
Utilization of ratios..................................................................................................................................5
SECTION 3.................................................................................................................................................5
i. Completing the information in business review template................................................................5
ii. Presenting the Income Statement.....................................................................................................6
iii. Balance sheet as per the given requirement.................................................................................6
iv. Presenting the calculation of ratios..............................................................................................8
SECTION 4...............................................................................................................................................11
Discussing the actions that can improve financial position....................................................................11
CONCLUSION.........................................................................................................................................11
REFERENCES..........................................................................................................................................13
APPENDIX...............................................................................................................................................14

INTRODUCTION
Financial Management is the process of assuring that company utilizes, manages and
control monetary resources in effective manner. In modern era, it plays significant role in gaining
competitive advantages to meet changing requirements. The present report will include concept
& significance of financial management. Present case study will comprise discussion of financial
statement and ratios. Current report will give emphasis on business template to accomplish the
case study requirements. Case study will focus on processes which can improve the financial
performance.
MAIN BODY
SECTION 1
Describing the concept and importance of Financial Management (FM)
FM is broad concept which play crucial role in organization for attaining success. There are
various reasons that validate that financial management should be implemented in business for
the purpose of attaining efficiency in its operational process. The following are importance of
FM:
 Guidance can be achieved by adopting the financial management techniques into
business procedure. Financial planning becomes possible in effectual way through
making implementing it in strategic manner.
 Acquiring funds from different sources becomes possible by utilizing the strategies of
financial management. It plays important role in diversifying risk and managing these
platform for increasing profitability of organization (Bulturbayevich and et.al., 2020).
 Organization’s operational efficiency can be increased with help of FM. In addition to
this, it reduces the delay production by cutting down financial cost.
 Proper allocation and optimization is ensured by financial management which provides
assistance to business to accomplish its objectives in effective manner.
 Relevant financial information is obtained which aid the firm to derive competitive
advantages through preparing financial reports more accurate. Controlling and

monitoring irrelevant actions becomes possible by using this procedure into operational
activities.
 Safeguarding and protecting funds can be exerted for obtaining smooth functioning by
gaining economies of scale.
SECTION 2
Explaining main financial statements
Main financial statements comprises equity shareholders, balance sheet, cash flow and
income statement. There are basically four types of Financial Statements (FS) which are as
mentioned below:
 Income statement plays important contribution in summarizing the huge monetary
transactions into shorter form. It provides details in way of segregating the income and
expenditure related to operational as well supporting activities of organization. The idea
regarding profitability and loss can be obtained by analyzing this particular statement (Easton
and et.al., 2018). Breakdown of expenditure and income provides assistance in evaluating and
making comparison of current statement with previous. Liquidity position for specific period
of time can be assessed.
 Shareholder’s equity statement shows investors contribution in company’s growth. This
type of FS is used to determine the ownership of equity shareholders in firm. Additional paid
up capital, preferred, common , etc stock information can be derived by taking this into
consideration (McCosker, 2021). Another form of FS is Balance Sheet (BS) which
contribute largely in determining the current financial position of company in industry. This is
prepared at the end of financial period for assessing the information in respect to assets and
liability to evaluate actual performance.
 Cash Flow (CF) is one of the essential statements of financial information. Details
regarding inflow and outflow can be obtained by preparing it. This measures company’s
ability of managing cash position through generating and monitoring its monetary resources.

Utilization of ratios
There are various purposes for which ratios are calculated. Company prepares main
financial statement so that ratios can be computed to derived summarized knowledge of firm’s
position. Following are the arsons for which ratios are determined.
 Operational efficiency can be assessed by evaluating the ratios of organization. There are
several ratios that company determines so that stakeholders like investors, lenders,
suppliers, etc. can get information regarding its speed of working (Kembauw and et.al.,
2020). The predication or assumption of profitability is also exerted by various financial
experts on basis of company’s operational efficiency.
 Comparison becomes possible as it is represented in systematic structure. Previous
information can be compared with current determined ratios (Ratio analysis, 2021). It
provides base for taking strategic decisions regarding investment, providing credit, etc.
Investors widely used ratio metrics to identify prevailing trend.
 Performance can be measured by evaluating the relationship between two or more
components. It gives significant information which aid in taking important decisions.
SECTION 3
i. Completing the information in business review template
The Company’s key financial and other performance indicators during the year were as
follows:
Particulars 2016
£’000
2015
£’000
Profit for the financial year 4305 18,987
Shareholder’s equity 8380
2.7
63,057
Customer satisfaction 4. 4.1
Average number of employees 64
9
618

Particulars Formula 2016 2015
Gross Profit Sales -
COGS
= 189,711 -108,586
= £ 81125
= 179,587- 98,975
= £80612
Particulars Formula 2016 2015
Net Profit Sales- COGS-
administration –
operating
expenses- interest
= 189,711 -108,586
- 13,751 - 22,374 –
1943
= 43057
179,587- 98,975 -
20,251- 34293 –
7081
= 18,987
Net Profit increased in 2016 by 226.7% during the year.
Shareholders’ equity increased by 32.9% by £83802.7.
ii. Presenting the Income Statement
The required income statement has been shown below in appendix in order to accomplish the
objective of case study. By making evaluation of available information of income statement it
can be assessed that its Gross & net profit are good due to its ability of generating higher
earnings from sales. The margins are 42.8 & 22.7%. accurate structure have been followed for
determining the respective margin of specified organization. In addition to this, company’s
performance is good as compared to previous but to beat the competition it requires some
improvement (Heo and et.al., 2020). By having appropriate system firm will be able to
accomplish its business objectives.

iii. Balance sheet as per the given requirement
Particulars 2016
Total
Non Current assets
Intangible assets 5,793
Tangible assets 52,812
Investments 10,693
69,298
Current assets
Stocks 28,571
Trade debtors 26,367
Short term deposits 14,779
Cash at bank and in
hand 14,632
84,349
Current liabilities
Bank loans and
overdrafts 9,610
Trade creditors 19,493
Other Creditors 678
Income tax payable 3,585
Other creditors
including tax and
social security
4,562
37,928
working capital 46,421
Total assets less 115,719

current liabilities
Non Current
Liabilities
Bank loans and
overdrafts 16,506
Other Liabilities 7,304
23,810
Provisions for
liabilities 8,094
Net assets 83,815
Capital and reserves
Called up share
capital 39,436
Reserves 1322
Retained earnings 43,057
Total equity 83,815
As per the requirement balance sheet has been formulated by filling the gapping areas to attain
to get deep understanding of report.
iv. Presenting the calculation of ratios
Profitability ratio (PR)
PR ratio play significant role in making assessment of firm’s financial position. The concerned
ratios have been determined to get idea regarding company’s capability in generating required
profitability margins
GPR (Gross Profit Ratio)

Particulars Formula 2015 2016
Gross profit 80612 81125
Sales 179,587 189,711
Gross profit Ratio (GPR) Gross profit/
sales*100
44.88 42.76
Gross profit margin helps various types of investors to evaluate company’s ability of
creating profitability by reducing COGS. Above illustrated table provide it can be analyzed that
firm has good GPR which is more than ideal ratio that’s 20%. For both the financial year it is
higher than benchmark established for sector. It is 44.88% for the year 2015 and in 2016 this
tends to be 42.76 %. In 2016 it has adopted decreasing trend which requires modification.
NPR (Net Profit Ratio )
Particulars Formula 2015 2016
Net Profit 18,987 43057
Sales 179,587 189,711
Net Profit ratio (NPR) Net Profit/
sales*100
10.57 22.69
NPR highly attracts the shareholders attention as main motive of investor is to earn high
return on investment. By giving emphasis on above ratio it can be identified that firm has
improved previous situation by taking strategic actions into execution (Kadim, Sunardi and
Husain, 2020). For the year 2015 & 2016 it is 10.57 and 22.69 % which ahs taken positive
directional grow in current year.
OPR (Operating profit Ratio)
Particulars Formula 2015 2016
Operating profit 42544 19500
Sales 179,587 189,711
Operating profit
ratio
Operating profit/
sales*100
23.68 10.27

OPR for the respective years 2015 and 2016 it is 23.68 and 10.27%. It has took declined
directional movement. By giving emphasis on available information it can be assessed that firm
requires more modification in order to make improvements (Bordeianu and Radu, 2020). For
having stable financial position firm need to reduce its operating expenses to increase related
profits.
Liquidity Ratio
Liquidity position is determined by giving focus on current and quick ratios which rare shown
below:
Current Ratio (CR)
Particulars Formula 2016
Current assets 84,349
Current liability 37,928
Current ratio Current assets/ Current liability 2.22
CR is important for stakeholders as it play significant role in influencing the decision
making procedure (Sahu and Pillai, 2017). In the 2016 year it is 2.22 which is higher than
benchmarking.
Quick Ratio (QR)
Particulars Formula 2016
Quick assets 55778
Current liability 37,928
Quick ratio Quick assets/ Current liability 1.47

QR calculated from the available information is shown above which is higher than
established standards. It be enhanced by taking relevant important actions.
Efficiency Ratio (ER)
Inventory Turnover Ratio (ITR)
Particulars Formula 2016
Stock 28,571
COGS 98,975
Inventory turnover
ratio
Stock/ COGS 0.28
ITR shows efficiency of company in replacing its stock by increasing sales. In addition to
this, the organization has good ratio but requires some improvement in order to improve
company’s financial position.
Assets Turnover Ratio (ATR)
Particulars Formula 2016
Revenue 189,711
Total assets 153647
Assets Turnover
Ratio
Revenue/ Total assets 1.23 times
It represents firm’s ability to generate revenue by utilizing assets in effective manner. To
reach higher efficiency more modification in respect to assets utilization can be enhanced.
Debtors Turnover Ratio (DTR)
Particulars Formula 2016
Trade Debtors 26,367
Sales 189,711

Debtors turnover
ratio
Trade Debtors/ Sales*365 50.72
Debtors turnover ratio decides firm’s activeness in obtaining the payment from the
debtors. In addition to this, specified ratio is showing favorable performance still needs some
modifications to attain competitive advantages.
SECTION 4
Discussing the actions that can improve financial position
There are various types of processes available that play role in enhancing the monetary
status of organization. By giving emphasis on available ratios and financial statements it can
interpreted that fir requires improvement in order to obtain stable financial position of concerned
business (Kroll, Marchioni and Ben-Horin, 2021). To gain competitive advantages organization
can take actions regarding reducing expenditures, increasing profit margins, implementing
changes in prevailing policies, consulting financial experts, etc.
Firm should pay attention on declining the expenditure related to COGS and operating
expenses. Having systematic structure which assures stable profit margin can help business to
evaluate improvement action. Installing various types of software in order to reduce labor
expenditure as well optimization of available resources can exerted in effectual pattern.
Emphasis should be given on implementing expenditure only on relevant parts that contribute in
continuous operational practices (Tian and Yu, 2017). Making sure that inventory management
system is adopted by firm for accomplishing the need of meeting market demands and supply.
Implementing such planning can lead enterprise towards success.
Investing on essential assets can increase the productivity as well profitability therefore
making appropriate planning for capital expenditure should be done. it reduces risk of losing the
investors that contribute in formulating funds which are important for smooth function. Retained
earning allocation for essential purposes and making suitable budgetary control system can aid in
reducing chances of arising irrelevant debt obtaining situations. This helps in having positive
creditworthiness so that required funds from diverse platforms can be raised. In addition to this,
actions for increasing efficiency of current assets by investing into relevant capital equipments