Improving Business Financial Performance: A Detailed Report

This report provides a comprehensive analysis of financial performance, emphasizing the importance of financial management in achieving a firm's objectives. It details financial statements, including the income statement, balance sheet, and cash flow statement, and explains the use of financial ratios to assess profitability, efficiency, and liquidity. Through a case study example, the report calculates key ratios such as gross profit margin, net profit margin, asset turnover, and current ratio, and analyzes how a business can improve its financial performance by focusing on cost reduction, enhanced marketing, and efficient asset management. The analysis concludes that effective financial administration is crucial for the sustainable operation and growth of a business.

Applied Business Finance

Contents
INTRODUCTION...........................................................................................................................................3
SECTION 1....................................................................................................................................................3
Explaining concept and importance of financial management................................................................3
SECTION 2....................................................................................................................................................4
Describe the financial statement and the use of the ratios used in the financial management..............4
SECTION 3....................................................................................................................................................6
(i) Complete the Business Review Template............................................................................................6
(ii) Produce the income statement using Excel........................................................................................6
(iii) Complete the Balance Sheet using Excel...........................................................................................7
SECTION 4....................................................................................................................................................7
By considering the example of the case study, calculate the ratios and analyse how can the financial
performance of the business can be improved.......................................................................................7
CONCLUSION...............................................................................................................................................9
REFERENCES..............................................................................................................................................11

INTRODUCTION
Financial management (FM) is the process of effectively achieving a firm's aims and objectives.
This is the process of better managing company budgetary assets to achieve corporate goals. In
today's world, it is critical for businesses to focus on enhanced economic resources development
in order to increase their profitability (Kim and et. al., 2019).
SECTION 1
Explaining concept and importance of financial management
In simple terms, financial management may be defined as "budgeting" (funds). It is
directly associated with the efficient and productive use of funds, i.e., when funds were obtained
whether or not they were completely realized. Financial management helps firms meet its goal,
including assuring the firm's survival chances. Many enterprises have to be dissolved because
their resources have been mismanaged. Additionally, firms have insufficient budget that must be
allocated in a method that yields a higher return than the cost. As a consequence, budgetary
control will be a need in the future.
Importance of financial management
The financial administration of a newly formed corporation is crucial. A firm will require
a large amount of cash when it first starts off, which may be secured through both long- and
short-term strategies. These funds might be used to acquire assets. The main issue, however, is
that such funds be invested in assets with a higher return (Malo-Alain, Aldoseri and Melegy,
2021).
Lacking competent financial management, a company cannot function: In history's
economic climate, small businesses and technology are on the rise, which means more
possibilities for financial advisors have become available. With no authorized person in charge
of handling the input and circulation of finances, a successful organization cannot function.
Since a successful businessman generates revenue, he or she may use it to pay expenses for
materials and raise employee compensation. In a business, delivering elevated products or

services is an excellent way to generate revenue. Each profitable business relies on effective
financial management.
Appropriate cash resources: Substantial money are essential to spend daily expenditures and to
buy larger assets in line with organizational standards; also, cash must be accessible to cover any
unexpected additional expenses that could arise. The company should be aware of where the
funds must originate from it and when they'll be needed in a crisis to address a financial issue.
Budgeting system: Excess money stream in a firm might be difficult to manage at times. It is a
bigger waste of time to have more wealth and not put it to use in a meaningful and helpful way.
Whenever a company has enough cash on hand, it should invest it wisely in top enterprises.
Additionally, be sure they've got lengthy development programs and are investigating new
initiatives that will give them with huge long profits. Consistently maintain their lengthy goals in
mind: Outstanding objectives or business are essential; once set, the task must be completed as
per the strategy at any expenses in order to achieve the intended outcomes (Tehrani and et.al,
2021).
Financial planning refers to the process of developing a sound economic plan in order to meet
corporate accounting objectives within a set time period. Long-term spending goals are crucial
for a company's success, and so most possible economic catastrophes can be averted with
relative simplicity. It's generally a good idea to have a well-thought-out goal in mind, especially
in finance, since excellent options can generate considerable level of interest, help the firm to
reach financial stability. Taking investing now, with proper planning, will enable accomplishing
these long-term aspirations much easier.
SECTION 2
Describe the financial statement and the use of the ratios used in the financial management.
The financial statements include an overview of a company's accounting, a balance sheet
that shows assets and debts, and retained earnings that shows the outcomes of operating over
time. Such declarations are essential sources of information because they give organized and
straightforward facts about an organization's commercial enterprise. There still are four major
sources of capital accounts that all participate in receiving a number of special types of stuff and,
as a response, a superior thought of making judgments.

The income statement shows how much money you made and how much money you spent
during a certain duration of time. It includes all active and passive expenditures in order to
calculate gross, net, and operational profit. This aids various parties in gaining critical data,
resulting in increased decision-making skill.
A balance sheet is generated at the conclusion of the fiscal year to provide a summary of the
resources, obligations, and capital held by the company. It is critical in informing individuals
regarding their liability-paying capability through the possession of assets (Dabbicco and Mattei,
2021).
A cash flow statement is a part of accounting that details how much revenue and financial
alternatives a firm earns and expenditures over time. Financial statements indicate a cash flow
report, assist in evaluating asset, liability, and ownership movements, and allow analyzing
profitability and liquidity simpler. The financial effect of a country's business on operational,
investment, and financial operations is shown in accounting information. Money from operating
operations, cash from capital investments, and revenue from financial statement are the three
divisions of a financial statement. There really are two approaches for preparing a cash flow
report: directly and indirectly. Capital inflows and sells, loan accrued interest, and m&a
transactions payments are all examples of investment activity. Negative cash flow isn't
necessarily a reason for concern; some companies opt to expend more in order to achieve their
objectives, and they may need to depend on finance to get there.
Another of the four financial statement is a summary of ownership interest, which is also known
as a declaration of modifications in manager's capital appreciation for a business owner, a
comment of modifications in associates' capital for a collaboration, an accompanying disclosures
in stockholders' capital appreciation for a corporation, or a statement of operations in taxpayer
money' capital appreciation for federal govt accounting information. The statement indicates how
a firm's stock price, deposits, and interest income have changed over time (Potrich, Vieira and
Kirch, 2018).
Use of the financial ratios
Fiscal Ratios Analysis is an accounting strategy that assists administrators in analysing financial
data that has been reported for the entire calendar quarter. It is a limitless instrument for the

management of a company's resources, since it aids in the examination of the financial position
of the company. It aids senior manager in developing short - term and long company decisions,
as well as categorizing patterns in those decisions by comparison them to past years. The
following are the most common applications of percentage evaluation:
SECTION 3
(i) Complete the Business Review Template.
(ii) Produce the income statement using Excel.
Shown in Appendix.

(iii) Complete the Balance Sheet using Excel.
SECTION 4
By considering the example of the case study, calculate the ratios and analyse how can the
financial performance of the business can be improved.
Profitability Ratios: It's a set of financial ratios that are being used to evaluate a firm's capacity
to generate revenues through period in connection to various parts of the accounting records of a
calendar period, as determined by evaluating the firm's productivity. Gross profit margin, net
profit margin, return on assets, and return on capital are amongst the most important financial
indicators (Botica Redmayne, Laswad and Ehalaiye, 2021).
 Gross Profit Margin= (Revenue – cost of Sales)/ Revenue* 100
= (189,711 – 108,586)/ 189,711* 100 = 42.76%

 Net Profit Margin = (Net profit/ Revenue)* 100
= (43,057/189,711)* 100 = 22.70%
Interpretation: The above ratios represent the profitability as a proportion of revenue earned,
taking into account both operating and non-operating expenditures. The gross profit margin is a
measure of money left over after expenses are deducted from the revenues, whereas the net
income is the % of money left over after expenses are deducted. The gross profit is 42.76
percent, but the net profit is 22.7 percent, indicating a profit decrease of around 20%. As a result,
the firm must reduce its overhead expenditures, which are preventing it from generating greater
net revenue. It is critical for the investment to compared earnings with those of other
organizations in the same industry in order to determine the company's actual competitive
advantage.
Efficiency ratio: This metric assesses how effectively a corporation manages its assets and
debts. It assesses how efficiently a company collects payments from consumers and how long
it'll take to accomplish debts payback, as well as the property and capital turnover. Return on
assets, inventory revenue, outstanding retention, and current liabilities total assets turnover are
the most important ratios.
 Asset turnover Ratio= Total Sales/ Total assets = 189,711/153,647 = 1.23
 Stock Turnover Ratio = Cost of Sales/ Stock = (108,586/28,571) = 3.8
 Accounts receivable Days = 365/ Debtors Turnover Ratio
=365/ 7.19 = 50.77 days
 Accounts Payable Days = 365/ Creditors Turnover Ratio
= 365/7.04 = 51.84 days
Interpretation: The average client takes 51 days to pay off the loan, while lenders require 52
days to complete their money. As a result, the income and expenses collects obligations and
revenues virtually simultaneously. However, it might be a constraint however if the trade
receivables diminish, it can pose problems for the organisation, even if the days are only a few
days apart. The stock turnover is 3.8, which implies that the entire stock development are as
follows roughly 4 times every year, or 3 months per year. The total assets turnover ratio of 1.23
indicates that the company is performing well though and generating sufficient income at the
conclusion of the financial year to stay in business.

Liquidity ratio: It assesses a company's capacity to meet its financial obligations and also
informs us something about its solvency. Current assets, current liabilities, and stock are used to
calculate these proportions. The current ratio and quick ratio are the most important ratios
(Mangantar, 2018).
 Current Ratio = Current Assets/ Current Liabilities
= 84,349/ 37,928 = 2.22:1
 Quick Ratio = (Current Assets- Stock)/ Current Liabilities
= (84,349 - 28571)/ 37,928 = 1.47:1
Interpretation: The aforementioned ratios provide information regarding the company's
liquidation status. The optimal current-to-quick ratio is 2:1, while the quick-to-current ratio is
1:1. The current assets to liabilities ratio is 2.22, indicating that the business is solvent. However,
when deducting stock from cash flows, the quick ratio remains at 1.47, indicating that the
company seems to have enough cash to pay down its creditors and is doing so successfully.
Improve financial performance
There are a variety of strategies that may be used to enhance in order to achieve a leadership
position in the market. It is critical to make constant adjustments in order to be able to adapt to
different situations. Furthermore, the analysis of the income statement reveals that the business
has spent different sorts of expenses such as equipment, labor, management, and so on in order
to achieve the desired profit levels. To lower costs, a firm can aim to establish a correct cost base
so that the highest amount of profitability can be established to generate more income (Lee, Lee
and Kim, 2020). With the right degree of cost system in place, a business may reduce spending
on non-essential items, resulting in increased liquidity. In order to accomplish objectives, a
corporation might focus on boosting advertising and marketing activities in order to produce
more income. By focusing on increasing brand recognition, it would raise the chances of
maintaining a constant local market.
CONCLUSION
The report concludes that financial administration plays an important part in the running of
the company. It manages finances, makes business choices, and reports on the revenue, financial
stability, and liquidity of the firm. The financial accounts are a description of the business. Each

company must keep such records and have them reviewed by authorized individuals both from
inside and outside. It contains information well about company's assets, liabilities, owner's
equity, earnings, earnings, and money inflow and outflow. Profitability ratios aid in the analysis
of a company's solvency and performance. As a result of the scenario study's calculated ratios, it
can be concluded that the firm has a significant net income, but it may reduce its production cost,
thereby boosting sales and net income.

REFERENCES
Books and Journal
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Tehrani, R. and et.al, 2021. Measure the level of adherence to the random walk Theory in
Various Industry Indices Using Markov Switching Model. Financial Management
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Dabbicco, G. and Mattei, G., 2021. The reconciliation of budgeting with financial reporting: A
comparative study of Italy and the UK. Public Money & Management, 41(2), pp.127-137.
Potrich, A. C. G., Vieira, K. M. and Kirch, G., 2018. How well do women do when it comes to
financial literacy? Proposition of an indicator and analysis of gender differences.
Journal of Behavioral and Experimental Finance. 17. pp.28-41.
Botica Redmayne, N., Laswad, F. and Ehalaiye, D., 2021. Evidence on the costs of changes in
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Mangantar, M., 2018. An Analysis of the Government Financial Performance Influence on
Community Welfare in North Sulawesi Province Indonesia. International Journal of
Economics and Financial Issues. 8(6). p.137.
Lee, J. M., Lee, J. and Kim, K. T., 2020. Consumer financial well-being: Knowledge is not
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