Report on Applied Business Finance: Financial Statements and Ratios

This report provides an overview of applied business finance, focusing on financial management and the use of financial ratios. It discusses the importance of financial management in areas such as financial planning, funds procurement, and utilization. The report also examines key financial statements, including income statements, balance sheets, and cash flow statements, and their role in assessing a company's financial position. Furthermore, it analyzes several financial ratios—net profit ratio, gross profit ratio, current ratio, and quick ratio—to evaluate a company's profitability and liquidity. The analysis concludes that the company is performing well and managing its resources effectively, highlighting areas of strength and potential improvement. Desklib offers this document and many others to support students in their studies.

Applied Business
Finance

Table of Contents
INTRODUCTION...........................................................................................................................3
SECTION 1......................................................................................................................................3
Identifying Financial management and its importance................................................................3
SECTION 2......................................................................................................................................4
Discussing financial statements and use of ratios........................................................................4
SECTION 3......................................................................................................................................6
SECTION 4......................................................................................................................................7
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................1

INTRODUCTION
Business finance relates to funds that is being utilised by the company in achieving
business goals and objectives and it is important for the company to purchase of raw material to
deliver goods and services to the customer (Bouveret, 2018). Finance include many services like
procurement of funds to utilise to fulfil the demand of an organisation. This helps in providing
funds to business working capital requirement, capital requirement and it also gives
diversification of funds. In this report it is being discussed about the financial management and
its importance and how ratio are useful in the company is being analysed. It also involve the
financial statements and proper discussion of ratio that is used in the company.
SECTION 1
Identifying Financial management and its importance
This is the process of maintaining finance and activities related to the finance in the
organisation and make its easy to meet the daily requirement and proper utilisation of funds in
effective manner. This include the decision making that is related to the investment, purchase of
fixed asset, sources of funds and many more. This become very important in planning,
organising and controlling to operate related to the finance (Eka, 2018). This gives important
information related to profit and loss, cost of company to take the decision accordingly and that
will give the appropriate decision accordingly to attain the objectives and goals. For the manager
this will give the important role in reducing the cash wastage of funds and that helps in managing
the funds. Followings are importance of financial management are as follows-
 Financial planning- This helps in planning of financial system in the business and it
involve the issue related to the budget, requirement of funds and sources of business.
This also useful in preparing the situations due to change in the working environment
and useful in achieving the effectiveness of the company. It control over cost, expenses,
credit and income of organisation that will leads to certain advantages as well.
 Funds procurement- In the financial management this helps in procurement of funds
from the lower sources of funds and will allow the company to satisfy the financial needs
of the company. This also helps in reviewing the funds requirement to the firm and allow
to get in effective manner. This is not easy to get the proper requirement of the company

and will lead to certain benefits to the company. There is need for day-to day operations,
investment, paying off creditors and purchase of raw material in the company.
 Utilisation of funds- Financial management helps in managing the funds and adequately
regulate them for the company so that management able to utilise the funds effectively. It
provide information related to allocation of different types of funds and helps in
investing them (Gomber, Koch and Siering, 2017). This gives important knowledge also
to reduce the cost of business and help in achieving the objectives.
 Financial decision- In the financial management this helps in managing in taking
financial decision that will affect functioning of organisation. The impact of financial
management helps in taking informed decisions regarding the enterprise as activity of
every department require the funds and will give the achievement of long-term goals of
business to improve the efficiency and effectiveness in the organisation. Maintaining
important relations with other shareholder and gives overall control the proficiency and
profitability in order to decrease the cost of borrowings funds.
 Increase profitability- Financial management useful in utilisation of funds properly so
as to increase the profitability of businesses to maintain and regulate the efficiency of the
organisation. It also promote savings to the company so as to decrease the cost of
borrowing funds that leads to certain benefits (Gupta and et.al, 2017). This helps in
managing the company to develop the proper procedure of company and leads to many
advantages. Financial management helps in maintaining the effectiveness that how it is
needs to be done to improve the performance of the organisation.
SECTION 2
Discussing financial statements and use of ratios
Financial statements refers to the indicators that is useful in conducting the reporting
period and will helps in taking proper picture of financial position of the organisation. There are
three types of financial statements which helps in implementing the activities and functions are
as follows-
 Income statements- This type of statement reflects the execution of the project and gives
benefits to the institution to stimulate the result in achieving the essential requirement of
the company. This reflects the profit and loss account that helps in justify the fiscal point

of the organisation. This also useful in elaborating the gain and expenses that used to
impact the organisation (Heaton, Polson and Witte, 2017). For the company this is very
essential to prepare the income statements to evaluate the income and expenses of the
organisation and will be easy to make it happen for the organisation.
 Balance sheet- This is also plays important role in developing the effective image of
company by depicting the final position of the company and precise picture of the
company. This refers to providing the concise presentation of asset and liabilities, equity
presented in monetary expression and will need to be equal at the of accounting period.
There are some equation on which communicator pictured by asset were equivalent to the
indebtedness. This helps the manager also to evaluate and analyse the financial position
of the organisation and gives clear pictures of the performance of the company.
 Cash flow statements- This concern with the cash receipt and paid out by business
during the specific period of time. This tells the cash posittion of company that how much
is going out and how much is coming in the management. This gives the helpful
information regarding which activities is profitable and which is going to loss and
through that manager able to analyse and measure the operational efficiency of the
organisation. This useful in taking informed decisions regarding the implementation of
certain activities and functions to manage the debt obligation and operating expenses of
the company. This statements is effectively monitor by the investors and shareholder who
were willing to invest in the company.
Ratios also play important role in covering wide variety of calculation that act as indicator and it
is top measure profitability and liquidity position of the company (Kadim, Sunardi and Husain,
2020). Following are the use of ratio in the financial management are as follows-
 Helps in comparison- Ratios were important tool to give comparison outlook to the
company and will give effective way to take required action regarding the performance of
the company. This critically evaluated by the shareholder, investor to compare the
performance of past years with the current years.
 Decision making- These ratio facilitates in taking effective decision making and helps
the company in taking appropriate action for the growth of the company. Through this
manager able to analyse the performance on different indicators and draw the conclusion
according to this.

 Supports in forecasting- This helps in forecasting the performance and growth rate of
the company that useful in taking informed decision regarding the policies and procedure
of the organisation. This gives the overall idea to the management and investor about the
internal and external condition of the firm.
 Facilitates in planning- This gives the facility of planning the future plans and strategy
so as to improve the performance of the company and useful in effective decision
regarding the future of the company (Mian and Sufi, 2018). This also gives the adequate
idea of the performance of the company and support the management to take the
necessary decisions regarding the organisation.
SECTION 3
Net profit ratio – This is ratio of after-tax profits to net sales and reveals the net profit
after all cost of production, administration, financing has been deducted from the sales and
income tax id going to recognises. This is best measure to determine and evaluation of working
capital. This ratio is useful in taking effective decision regarding the further policies and rules
after analysing and evaluating the net profit of the organisation and will lead to certain benefits
to the management as well.
Net profit margin = 43057 / 189711* 100
= 22.69%
Gross profit- This ratio will help in enable the expression of profits that is earned and
procure by company from the operations. This ratio helps in evaluating that how resources are
efficient and gives useful information regarding the organisation's sales and cost. This is useful
in determining the effectiveness of the organisation and will lead to many knowledge that how
accurately company is selling goods and services.
Gross profit margin = 81125/189711* 100
= 42.76%
Current ratio- This ratio gives the information regarding the measurement of ability of
an organisation and ability to pay the short-term obligation. It incorporates current liabilities as
well as current asset that indicate the liquidity of the company. This ratio is very effective in
knowing the short-term liquidity of company in order to identify the needs and requirement of
the organisation. Through this shareholder understand more about the company and will help in
comparing with competitors and peers.

Current ratio- Current asset/ current liabilities
= 54349 / 37928
= 2.22:1
Quick ratio- This indicate the liquidity position in short-term and measure the company
ability to meet urgent requirement of cash in the organisation (Siami-Namini and Namin, 2018).
This indicate ability to instantly use near cash asset to pay the current liabilities and this also
known as the Acid test ratio. If there is high ratio then it indicate that company is struggling with
paying debts.
Quick ratio = (Current asset – inventory)/ current liabilities
= (84349-28571) / 37928
=1.47:1
SECTION 4
From the above ratio it is interpret that efficiency of the company id achieving high level
of profitability in the relevance to its core operations and that will develop the effectiveness. As
the condition of the company is quite satisfactory and gives proper way of managing the
resources of the company. The ratio of Net profit and gross profit is giving positive sign to the
management and depicts the overall better performance of the company and that will help in
achieving goals and objectives of the firm. This helps in operating better future operational
strategy to understand the needs and requirement of the organisation. Apart from that financial
position of an enterprise is appropriate and able to manage and control its cost and other
expenses as well in order to attain better profitability of the firm. This gives the management a
important guidance about the which area is beneficial and which needs improvement in the
organisation and become essential to follow.
CONCLUSION
From the above report it is concluded that financial management concern with planning,
organizing, directing and controlling the different financial activities such as procurement and
utilisation of funds of the organisation. Its functions is to ensure the regular and adequacy supply
of the funds to fulfil the expectations of shareholders. In this report it has been discussed about
the importance of financial management and its main concept in the organisation and discussing
the main financials statements such as Income statements, Balance sheet and Cash flow

statements. Apart from that explaining the use of ratio in financial management analysing the
different ratio in the company. Some of the ratio are Net profit ratio, Gross profit ratio, Current
ratio and Quick ratio is being evaluated in terms of company and interpret them and determined
the impact of these ratio on the firm and how we could improve this is discussed.

REFERENCES
Books and Journals:
Bouveret, A., 2018. Cyber risk for the financial sector: A framework for quantitative assessment.
International Monetary Fund.
Eka, H., 2018. Corporate finance and firm value in the Indonesian manufacturing companies.
BUSINESS STUDIES. 11(2). pp.113-127.
Gomber, P., Koch, J. A. and Siering, M., 2017. Digital Finance and FinTech: current research
and future research directions. Journal of Business Economics. 87(5). pp.537-580.
Gupta, M. S. and et.al, 2017. Digital revolutions in public finance. International Monetary Fund.
Heaton, J. B., Polson, N. G. and Witte, J. H., 2017. Deep learning for finance: deep portfolios.
Applied Stochastic Models in Business and Industry. 33(1). pp.3-12.
Kadim, A., Sunardi, N. and Husain, T., 2020. The modeling firm's value based on financial
ratios, intellectual capital and dividend policy. Accounting. 6(5). pp.859-870.
Mian, A. and Sufi, A., 2018. Finance and business cycles: the credit-driven household demand
channel. Journal of Economic Perspectives. 32(3). pp.31-58.
Siami-Namini, S. and Namin, A.S., 2018. Forecasting economics and financial time series:
ARIMA vs. LSTM. arXiv preprint arXiv:1803.06386.
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