Applied Business Finance: Ratio Analysis and Financial Review

This report provides a comprehensive analysis of applied business finance, focusing on financial statements and ratio analysis to evaluate a company's financial performance. It begins by highlighting the importance of financial management and its role in achieving long-term stability and efficiency. The report then delves into key financial statements, including the balance sheet, income statement, cash flow statement, and retained earnings statement, explaining their significance and how ratios derived from these statements can be used for assessment. A business review is presented, calculating various ratios such as profitability, efficiency, and liquidity ratios, with interpretations provided to gauge the company's strengths and weaknesses. The report concludes by discussing processes that businesses can use to improve their financial performance, such as managing liquidity, inventory, and fixed assets, emphasizing the need for accurate sales forecasts and efficient resource utilization. This document is available on Desklib, a platform offering a wide array of study tools for students.

Applied Business Finance

Contents
INTRODUCTION...........................................................................................................................................3
SECTION 1....................................................................................................................................................3
Financial Management and its Importance.............................................................................................3
SECTION 2....................................................................................................................................................4
Discussing financial statements and use of ratios...................................................................................4
SECTION 3....................................................................................................................................................5
Calculating ratios and explaining the interpretation ...............................................................................9
SECTION 4..................................................................................................................................................11
Discuss the process which business use for improve its financial performance:...................................11
CONCLUSION.............................................................................................................................................11
REFERENCES..............................................................................................................................................13
APPENDIX..................................................................................................................................................14

INTRODUCTION
Financial management is an essential component of effective operations, since it is linked to
many functional areas such as people, marketing, and manufacturing. With multiple methods,
money planning contains a wide scope of topics. Financial Management is becoming a critical
component of a company's operations, but they are putting greater emphasis on it. Finance
function, company financial services, financial economics, finance equations, and financial
analysis are all terms used to describe personal finance. For learners of finance, business, and
administration, grasping the fundamental concepts of financial planning is significant. The
importance of financial administration will be discussed in this paper. This will include the key
financial accounts as well as the use of ratios in FM. The current report will have a company
review format and will meet all of the specified standards. It will include financial quality
improvement techniques.
SECTION 1
Financial Management and its Importance
The implementation of fundamental management concepts to controlling a firm's assets is
what FM is all about. It has to do with finding, assessing, and managing monetary resources in
order to ensure long-term viability and efficiency. It ensures that the corporation's economic
condition is accurate and fair by following business vision for the organization's ultimate
economic objectives. Financial management may help a company achieve stability and
prosperity in a range of methods. It entails budgeting process, asset protection and allocation,
investment evaluation, critical financial judgments, and a focus on development and
sustainability, among other things.
It also aids in the improvement of living standards, evaluating the value of a company,
tax preparation, and financial assets. Firms can achieve achievement by effectively organizing
and assigning the necessary amount of financial resources to ensure appropriate reliable working.
Rate of return, failing probability, and item usability becomes conceivable. Planning in FM
allows analyzing the needed number of funding in the most efficient way possible. It aids in

proper assessment in order to acquire data for strategic options, allowing for the attainment of a
leadership position in the industry.
Importance of financial management
Finance is essential to every company's survival. It must satisfy the demands of the
company's operation. So each successful business must keep a sufficient quantity of funds on
hand to ensure smooth operations and to constantly running the organization in order to fulfil the
company's objectives. Only efficient budgetary control will allow the company to attain its aim.
They cannot overlook the value of money at any moment or in any circumstance. The following
are some of the reasons why money planning is so important:
Financial Preparation: Financial management aids in determining the financial requirements of
a company's operation and then contributes to economic strategy. Consider to be an essential
component of management that aids in the growth of a company.
Funding Obtainment: Financial management encompasses obtain the necessary funds for a
corporate operation. Obtaining required cash is an important aspect of financial administration
that includes finding the most cost-effective sources of funding.
SECTION 2
Discussing financial statements and use of ratios
The financial statement must provide accurate and complete information about the
responsible investor's operational results and financial position. Comments should provide any
additional information that is required for this function. If the capital structure, statement of
financial position, and cash flows already contain the facts that should be provided in the
additions, there is no need to incorporate additional notations. The comments may comprise
material that is not included in the income statement or the balance sheet, as well as additional
details. Without regards to every component of the accounting records, following lines from the
prior fiscal quarter must be given.

Balance sheet: This study outlines the value of a stock as of a specific date. It's an itemized
document that lists a company's financial position as of a specific date, generally the conclusion
of the fiscal year. This really is the progress report for the firm.
Income statement: The entire quantity of sales, as well as all expenditures involved in attaining
them and other operational costs, are shown in this document. It is a method of recording
company activities such as income, costs, and profits. This may be used to determine if the firm
made profits for that quarter or the other timeframe.
Cash flow statement: This is a statement that shows how much money a firm makes and that it
does it. Although a deal is completed, it is frequently not recognized in the income statement. In
such instances, it is included in the cash flow. Consider a loan that is obtained and set away for
future usage. This monetary transaction is verified on the account.
Retained earnings statement: Retained earnings refer to the part of profit that is maintained in the
firm after dividend has been paid out. This report shows a company's total profits or revenues
after dividends have been paid.
Use of ratio in financial management
The ratios metric helps in a variety of ways to provide summary data in a suitable form so that
correct assessment may be accomplished. Furthermore, data comparison may be carried out by
comparing past with current outcomes, resulting in a greater capacity to discover areas that want
improvement.
Ratios enable a company to determine the current steady growth, allowing critical steps to be
taken to improve the situation. This became feasible to assess efficiency and productivity and
calculate the degree of effort required to meet industry standards.
It enables the company to meet the legal obligations of delivering comprehensive, trustworthy,
appropriate, and timely information to enable consumers to make strategic decisions. Financial
management means following a company's results and making comparison judgments based on
all micro and macro environment in order to estimate its liquidity situation accurately.
Accounting ratios may be used to identify problem areas and their origins, allowing for the
implementation of appropriate solutions.

SECTION 3
Business review:
The Net Profit for the year 2016, is £43057 (2015: £18,987,000).
The Company’s key financial and other performance indicators during the year were as follows:
2016
£’000
2015
£’000
Change
%
Turnover (continuing operations) 189,711 179,587 +5.6%
Profit for the financial year 43057 18,987 + 27.3 %
Shareholder’s equity 83815 63,057 +32.9%
Current assets as % of current liabilities 222.3 % 304% -82%
Customer satisfaction 4.5 4.1 +10%
Average number of employees 649 618 +5%
Turnover from continuing operations increased by 5.6% during the year, primarily due to the
acquisition of the Extinguishers business on 1 May 2015, which made a full year’s contribution
in 2016.
Gross Profit =£81125
Net Profit = £43057
Net Profit increased in 2016 by 27.3 %during the year.
Shareholders’ equity increased by 32.9% by £20758.
The company’s “quick ratio” (Current Assets (excluding stock) divided by Current Liabilities) is
1.47
The company’s “current ratio” (Current Assets divided by Current Liabilities) is2.22
Income statement: According to the financial statement, the organisation earned 48.2 percent
gross margin and 22.7 percent met sales and profits. In order to achieve revenue, the company
has placed a premium on going over budget such as equipment, administrative, and labour. On

the basis of the calculated result, it can be stated that the organisation is profitable at a higher
than optimum margins, which really is a great indication for the firm (Attached in appendix)
Balance sheet:
Amount
2016
Total
£0
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
4,562

security
37,928.
working capital 46,421
Total assets less
current liabilities 1,15,719.
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 83,802
The preceding financial report indicates that the business has an adequate level of funds that is an
indication of a better situation in the sector. The financial account of resources equal obligations

+ equity was used to create the balance sheet. This means that inventory, trade debts, capital, and
other assets are included in the assets section of the produced financial statements. In
furthermore, the company's obligations are made up of bank overdrafts, trade receivables, and so
on. Deposits retain profits, and other aspects of the shares of a company are included. Upon that
basis of the calculated result, it can be stated that the stated firm has a high standard of
performance in meeting quick obligations. This reflects the industry's steady status. According to
the evaluation, the company is able to reach a competitive edge over its rivals.
Calculating ratios and explaining the interpretation
The profitability ratio may be used to determine how successfully a firm earns profit from the
sale a bigger quantity of items and activities. Gross profit is linked to determining how often a
firm can reduce its cost of sales in order to earn a profit. The current study's attained result is
42.76 percent, which is more than or equal to 40%. Here on strength of something like this, it can
be concluded that the firm has been effective in reducing expenses in order to increase profits.
Furthermore, the firm's operating profit is 22.70 percent, which is higher than the industry
average of 20%, indicating that the company is making adequate efforts to grow product sales.

The industry average is 2.22 times, based on the analysis of the aforementioned ratio. It is greater
than the optimum ratio, which is around 1.2-1.5. By combining the different ratios, it can be seen
that the firm should attach great importance to the inclination number, as it may have a
detrimental impact on the firm's financial condition.

Merchandise and fixed asset efficiency ratios have been computed so that adequate information
of the industry's operations may be gained. The estimated stock turnover is 3.80 times, which is
less than 5 times. In furthermore, it has to be strengthened in order to provide greater industry
sustainability. This demonstrates that the firm lacks the necessary capacity to replenish its stock.
The fixed asset turnover ratio is 0.62, which is less than 2.5 times, and it needs to be increased in
order to work properly. According to the estimated ratio, the objective was to minimize
effectiveness, which has to be increased in order to make improvements in the firm's operations.
SECTION 4
Discuss the process which business use for improve its financial performance:
There are a variety of techniques that a corporation may use to create changes inside the
organisation. These approaches must be used in order to eliminate insignificant variables,
resulting in increased revenue and profit margins. Based on the evaluation of company
effectiveness, it can be concluded that the company has to focus on increasing its liquidity
position, which is currently greater than industry norms. It might have a detrimental effect by
giving the impression that the company is not appropriately utilizing its short-term funding
options. For with this reason, the firm should focus on having accurate sales forecast because a
sufficient amount of inventory can be managed.
It will help to maximize resource use by lowering costs associated with excess inventory.
Implementation of the inventory system demonstrates that the firm has sufficient stock to meet
market pressures. It enables you to determine the right quantity of inventory necessary, allowing
you to reduce costs associated with keeping and extra inventory. It is critical for the business to
establish an appropriate management practices in order to minimize technology depreciation.
The object's needed level of costs may be covered with accessible fast assets, according to the
analysis of the revenue statement.
CONCLUSION
It can be inferred from the preceding study that it is essential to improve business money in
order to achieve greater profitability. Furthermore, the current paper includes the notion and
significance of financial planning. The major financial figures are cash flow, income, increase in
ownership, and capital structure. The use of ratios in FM has been discussed in this study, which