Financial Management: Financial Statement Analysis & Business Growth

This report provides an overview of financial management, emphasizing its importance in planning, controlling, and organizing business activities. It explains the concept of financial management, its importance to investors, companies, and employees, and delves into financial statements, including the income statement, balance sheet, and cash flow statement, highlighting their uses in determining a business's financial position. The report also discusses the application of ratios in financial administration for comparing performance, assessing profitability, and determining market position. Furthermore, it uses a business review template and excel to accomplish balance sheets and income statements. The report also elaborates on the process of enhancing business concerns by using various examples, focusing on increasing turnover, customer satisfaction, and investor wealth. The conclusion emphasizes the integral role of financial management in reducing costs, increasing profitability, and ensuring economic stability, recommending annual audits of financial records.

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Table of Contents
INTRODUCTION...........................................................................................................................2
MAIN BODY...................................................................................................................................2
Explain the concept and importance of Financial Management............................................2
Section 2...........................................................................................................................................3
Explain the monetary statement and its uses..........................................................................3
Section 3...........................................................................................................................................4
Business review Template....................................................................................................4
Using excel, accomplish the balance sheet..........................................................................5
Describe various ratios by using details from the case study.............................................6
Section 4...........................................................................................................................................7
Elaborate the process to enhance the business concern by the use of various examples.......7
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9
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INTRODUCTION
Financial accounting is process of planning, controlling, directing and organizing the
business activities for instance sources of funds and application of funds. In general terms,
applying the generic administration principles to the fiscal resources of a business concern
(Ermakova, and et.al., 2020). The following report explains the importance of fiscal management
in daily life and how financial statement helps in determining the financial position of a business
organization. Ratios are used to compare the financial records of a year with the previous years
or with a competitor. It also helps in determining the paying capacity of a business organisation.
These ratios also help in determining the position in market. The uses of administration
management in view of management, workers, investors, customers and business.
MAIN BODY
Section 1
Explain the concept and importance of Financial Management.
Financial Management – It elaborates about managing the finances using different
procedure, activities and dealings. Funds needs to be managed by a part or full time employees
of a business organization. Every wants to excel in the market for which they need to manage,
prepare, organise and assign funds after proper study. One of crucial part for any management is
managing its finances so that the business can perform its activities effectively and efficiently.
Administration uses these funds in positioning of product, marketing, promotion, positioning and
for future uncertainties (Motta, 2020).
It is essential to predict the future uncertainties and risk associated with the business to
sustain in the competitive market. This also helps in determining the weak point of a business
which helps in working out those short comings and excel in market.
Fiscal management helps in ascertaining the source of finance such as cash, collection, raise and
the funds to various uses. It also helps in determining the mix of sources of funds and investment
alternatives where these will be invested. Financial Administration helps a firm, business
concern, individual to determine the possible ways of investment alternatives. Companies that
needs finances for the expansion may to the banks for the requirement, they provide loans to the
business concern at attractive rates.
Importance of Financial management –
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1. Investors – A person invest in an organisation with a view of maximizing the amount
invested in the company. An investor can invest according to their risk taking abilities.
Investment alternatives are mutual funds, bonds, peer to peer lending and FD, RD and
saving account deposits with the banks (Xu, and el.al., 2020).
2. Companies – Fiscal Management manages the operational actions of a business concern.
Organisation raise and manages funds for the purpose expansion and new investment
opportunities available. Lack of funds or mismanagement will lead to improper
functioning of funds.
3. Employee – Management of finance affects every individual savings and investing
activities which is to be supported by regular evaluation of the funds invested.
Section 2
Explain the monetary statement and its uses.
Fiscal Statements are used to determine the financial position of a business and its market
share. This statement consists of statement of Profit and Loss, Balance Sheet and Cash flow
statement. It explains the financial position of the business and covers every aspect of business
transactions which helps in preparing final accounts. An investor uses these records for the
investing in an organisation (Rees, and et.al., 2021). Financial Statements includes,
1. Income statement: It states the expenses and income earned by the business organization
during an accounting year. It also explains the nature of activities operating and non-
operating. It explains the mix of application of funds in operating and non-operating
activities.
2. Balance Sheet: It consists of two types of side one is asset side which comprises of all
the Current and Non-Current Assets and other side is liabilities side which includes
Current and Non-Current Liabilities of a business concern of an accounting year.
3. Cash flow Statement: It consists of activities such as operating, financial and investing.
Operating activities are related to the daily activities of the business. Financing activities
includes activities which deals in procurement of funds and investing activities includes
activities which involves element of investment (Arner and et.,al., 2020).
Usage of ratios in Fiscal administration -
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1. Ratios are used as a tool to compare the previous performance with the current
performance of a business concern. Financial statements are used to ascertain these ratios.
2. It helps in deciding the profitability of a business concern and it also specifies the mix of
assets and liabilities and states the profit with the view of sales (Vijayalakshmi and et.,al.,
2021).
3. It Helps business concern in determining the market position of a business concern.
4. Activity ratios and liquidity ratios are used to ascertain the paying back capacity and
solvency of a business firm.
5. It helps in decision making and also calculates different aspects associated with a
business concern. Such as Net Cash available and liquidity of a firm.
6. It helps in evaluating quantitative data as well as in determining the time period which
the firm will be able to continue if the financial performance of the organisation is not
upto the mark (Amato and et.al., 2020).
Section 3
Business review Template
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By
using excel, Finalize the income statement for the sample organisation.
(In appendix)
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Using excel, accomplish the balance sheet.
Describe various ratios by using details from the case study.
Profitability ratio: These ratios helps assessing the capabilities of a firm in order to
earn over a period of time. Final accounts are comprising of income statement and
balance sheet are used to compute different ratios. Some of the ratios are operating ratio,
gross profit ratio, operating profit ratio and Net profit ratio (Christiansen, 2021).
Results: This ratio shows that the profit earned by the organisation in respect of revenue.
These ratios also include non-operating income and operating income. There is a huge
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difference between the gross profit and net profit that is approximately 20% which
means organisation is spending a lot of expenses on non-operating expenses.
Efficiency Ratio: This ratio states how efficiently an organisation uses its assets or
liabilities. It includes the time period in which the payment is made and received by the
organisation. The ratio includes account payable ratio, receivable turnover ratio and asset
turnover ratio (Metghalchi, and et.al., 2021).
Analysis: The above calculated ratio shows that companies stocks rotates every 3.8
months which means approximately 3 times in a year. Asset turnover ratio shows that
how efficiently company used their financial assets to generate annual sales. Company
receives payment in 51 days from its debtors and company requires 52 days in making a
payment to its creditors.
Liquidity Ratio: This is one of the financial ratios which is used to determine the paying
capacity of an organisation. Ratio more than 1 signifies that the company have sufficient
funds to pay off its current liabilities. An investor also considers these ratios in order to
ascertain the financial position of a business concern (Diallo and Gundogdu, 2021).
Interpretation: The above ratio states that the paying capacity of a business is sound
and business will be able to pay off its current obligations. Ideal current Ratio is 2:1 and
liquid ratio is 1:1. In the following case both the ratios are above the ratios which
signifies the financial position of a business.
Section 4
Elaborate the process to enhance the business concern by the use of various examples.
Financial performance means the profits earned by the company by its business
operations. This performance is evaluated on the basis of earnings with regards to the industry
standards. It shows that how well a company uses its resources to generate sales. Maximization
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of wealth is a primary objective of a business concern, as every investor wants to maximise his
wealth by investing in the business organisations (Baker, Kumar and Rao, 2020). From the
above ratio it can be analysed that,
 Company has increased its turnover by 5.6% from the previous year by effective
management.
 The reason behind the increase in sales is because of the increase in the customer
satisfaction.
 Investors wealth have increased from the previous year with the increase in the revenue
of the business.
 Companies Net profit have increased by 5.6% over a fiscal year.
Improvements are as:
 Marketing strategies are used to increase the sales of the organisation.
 Company needs to reduce their cost of production as well as the profitability of a
business.
CONCLUSION
The following reports states that the financial management is an integral part of a
business concern. Proper management helps in reducing the per unit cost as well increases
profitability. It provides funds, solvency, decision making and economic stability to a business.
Firms have to audit their financial records and get them audited annually by a certified person.
The above ratios show that the firm will be able to earn a significant amount of profit.
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REFERENCES
Books and Journals
Arner, D.W., and et.,al., 2020. Sustainability, FinTech and financial inclusion. European
Business Organization Law Review. 21(1). pp.7-35.
Baker, H.K., Kumar, S. and Rao, P., 2020. Financing preferences and practices of Indian SMEs.
Global Finance Journal. 43. p.100388.
Christiansen, J., 2021. Fixing fictions through blended finance: The entrepreneurial ensemble
and risk interpretation in the Blue Economy. Geoforum. 120. pp.93-102.
D’Amato, A., 2020. Capital structure, debt maturity, and financial crisis: empirical evidence
from SMEs. Small Business Economics. 55(4). pp.919-941.
Diallo, A.T. and Gundogdu, A.S., 2021. Sustainable Development and Infrastructure: An Islamic
Finance Perspective. Springer Nature.
Ermakova, E.P., 2020. The development of the legal framework for “green” finance in Russia,
the EU and China: a comparative legal analysis. RUDN Journal of Law. 24(2). pp.335-
352.
Metghalchi, M., and et.,al., 2021. Trading rules and excess returns: evidence from Turkey.
International Journal of Islamic and Middle Eastern Finance and Management.
Motta, V., 2020. Lack of access to external finance and SME labor productivity: does project
quality matter?. Small Business Economics. 54(1). pp.119-134.
Rees, D., 2021. 5 Finance principles. Principles and Practice of Property Valuation in Australia.
pp.49-64.
Vijayalakshmi, S., and et.,al., 2021. Strategic Evaluation of Local Ethics and Culture in Shaping
Entrepreneurial Economic Development in Various Businesses and Its Impact on
Finance Management during COVID-19 Outbreaks. Materials Today: Proceedings.
Xu, Z., and el., al., 2020. Analysis of the environmental trend of network finance and its
influence on traditional commercial banks. Journal of Computational and Applied
Mathematics. 379. p.112907.
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Appendix:
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