Financial Resource Management: Analysis and Application

This report provides a detailed analysis of financial resource management within an organization, covering key aspects such as accounting principles, financial statements (Profit & Loss, Balance Sheet, and Cash Flow Statement), and the importance of cash flow management. It discusses the principles of accounting, including relevance, reliability, matching concept, timeliness, and cost principle, and highlights the significance of financial statements in assessing an organization's financial health. The report also delves into investment and finance decisions, emphasizing the balance between short-term and long-term goals, and the role of financial managers in allocating and borrowing resources. Furthermore, it addresses the principles of financial management, risk and return considerations, and the capacity of existing financial systems, including forecasting and documenting financial data. The report concludes with practical activities related to financial data gathering and forecasting methods, providing a comprehensive overview of financial resource management and its practical applications.

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manage financial resources

Student’s Name: Gagan Sharma 2
Student’s Id: 201801189
Contents
Introduction...........................................................................................................................................3
Written Activity.....................................................................................................................................4
Practical Activity.................................................................................................................................11
Questions.............................................................................................................................................27
References...........................................................................................................................................37

Student’s Name: Gagan Sharma 3
Student’s Id: 201801189
Introduction
Business management is defined as the process of organizing and co-operating the
activities within an organization in order to achieve the goals or business objectives. Within
an organization, the management can be done over human resources, material resources, and
financial resources. This assignment is written to critically analyze how an organization could
manage its financial resources to achieve its target goals. The assignment focuses on the deep
understanding of the financial management and the various other aspects associated with it.

Student’s Name: Gagan Sharma 4
Student’s Id: 201801189
Written Activity
1) Principles of accounting:
 Relevance: Relevance is an accounting principle which states that if the financial
information found to be useful for the external users then it should be relevant.
 Reliability: Reliability is the process of recording the transactions that are relevant
only to the organization objective.
 Matching concept: a Matching concept in accounting principle states that the account
transactions must be accurate and the expenditure should match with the revenues.
 Timeliness: This principle states that in a short period of time, ongoing and complex
financial activities can be examined and recorded.
 Cost principle: This principle states that the amount spent in purchasing a product at
the time of origination and is recorded as such in the financial accounts which are
referred to as cost history (Chaudhary and Prasad, 2010).
2) Financial statements:
Financial statements are defined as the financial information that is
represented in the form of reports. Financial statements are necessary for every
business and the accountants’ should wholly process them.
Profit & Loss statement
The financial statement, profit and loss statement summarizes the costs, expenses,
and revenues, incurred by an organization during a certain period of time, which is
usually the fiscal quarter or a year. These records facilitate with information
associated with an organization’s ability and inability to earn profits by reducing
costs, increasing revenue, or in some case both (Reiff, 2019).
Balance Sheet

Student’s Name: Gagan Sharma 5
Student’s Id: 201801189
The balance sheet of an organization informs about the firm’s assets, shareholder’s
equity, and liabilities at a certain point in time. With the help of the balance sheet, a
person is able to calculate the rates of returns and also help in evaluating the
company’s capital structure. In simple words, a balance sheet exhibits different
aspect associated with an organization that can be categorized under two broad
factors which are, the things an organization owes and the things the organization
owns, along with the investments made by various shareholders (Hayes, 2018).
Cash Flow Statement
A cash flow statement offers information about the different changes that occur in
the cash equivalents and cash in an organization and the cash flow is classified into
investing financing, and operating activities. It is a very crucial report that has to be
formulated for every accounting period by an organization (Kenton, 2019).
3) Cash flow:
Cash flow defines how cash is utilized to meet the goals of the organization.
This determines how the business owners manage their cash in paying their dues.
Cash flow plays a major role in the financial business management which allows the
business owners to make wise plans on cash circulation to meet the desired targets of
the business.
4) Three communication process used within the organization:
Communication is necessary for the exchange of information among the
employees working in an organization.
 Chats/emails
 Phone calls

Student’s Name: Gagan Sharma 6
Student’s Id: 201801189
 Letter of notice
5) Reports to be lodged with the Australian Security and Investment commission:
a) Statement of financial position: The sheet maintains the details of financial assets and
obligations on that specific day.
b) Statement of comprehensive income: This is the report that summarizes the net assets
of an organization over a specific period of time.
c) Statement of cash flows: This report maintains the circulation of cash which includes
the details on the cash management by the organization in the payment of its dues
over a specific period of time.
d) Consolidated financial statements: This includes the financial information like
financial assets and cash flows in a collective way including the financial information
of a company and its subsidiaries.
e) Notes to the financial statement: The notes to financial statement add additional
information to the financial information to evaluate the financial statements in a
deeper manner.
f) Director’s declaration of financial statements: This statement includes the declaration
of the director telling that the financial statements apply to the accounting standards.
g) Director’s report: This report includes a review of the entire financial statement.
h) Auditor’s report: Report generated from after auditing the financial statements.
6) a) Cost of capital: It is defined as the cost of investment which determines the rate at
which an investor can earn the same money by investing in some other way.
b) The capital structure can be defined as the process through which an organization
finances all his operations by utilizing various different available sources of funds.
The debt is classified as a long-term payable note while the equity is classified as

Student’s Name: Gagan Sharma 7
Student’s Id: 201801189
retained earnings. There are few short-term debts are also considered as a part of the
capital structure. Therefore, capital structure is a mix of a number of aspects like
organization’s short-term debt, long-term debt, preferred equity, and common equity.
When analyzing an organization capital structure, the main thing that is being referred
to is the D/E ratio, which informs about the level of risk in which an organization is.
c) Working capital: It is defined as the measure of the financial efficiency of an
organization which is calculated as:
Working capital= Financial assets – Financial liabilities (Amiram, Bozanic & Rouen,
2015).
7) Investment and Finance decisions:
 Investment Decisions The investment decisions are taken around the
capital that an organization has to spend on assets and which will further help in
yielding a high level of return on investment for an organization, over a specified
period of time. In simple words, the main approach is to make effective decisions of
investments that will help in gaining profits for an organization. To successfully
conduct this practice it is very crucial for an organization to strike a correct balance
between the long-term and short-term goals. The short-term goals include the
different bills which an organization has to pay and by the term keeping all the cash, it
means that the organization is not investing their money in any aspect which may turn
out to be beneficial for the organization. On the other hand, the main approach of the
long-term investments is to incur all the money on various different opportunities that
will be fruitful for the organization in the long-run. But also at the same time due to
long-term investments, an organization does not hold appropriate cash to pay bills or
for the purpose of security.

Student’s Name: Gagan Sharma 8
Student’s Id: 201801189
 Finance Decisions
It is the duty of the finance manager in an organization, to take crucial
decisions associated with the financing mix. This approach is mainly concerned with
the aspects like allocation of resources and borrowing resources, which are needed for
investment decisions. There are two main sources of financing decisions, the different
aspects from where the funds can be acquired for example utilizing the capital of the
organization, retaining earning, borrowing money from outside sources in the form of
loan or debenture, and many other different options. The main aim of the financial
decisions is to maintain an appropriate capital structure that is developing an accurate
composition of debt and equity.
8) The goal of financial resource management:
The major goal of financial resource management is to plan for the financial
resource allocation to several departments to carry out the business operations. In
financial resource management, the financial managers make wise plans for the
utilization of resources to meet the present needs as well as to save for the future
(Clay, Kharitonova, Ruby, Aballéa & Zah, 2014).
9) Principles of financial management:
Some of the principles of finance are listed below:
a) The business owners should plan their budget wisely before the start of any
project.
b) Plans should be made on the allocation of financial resources on several units
of the business

Student’s Name: Gagan Sharma 9
Student’s Id: 201801189
c) Carry out the process so that it does not disturb the estimated financial
budget.
d) Spend money to reach the goal and at the same time be aware of wrong
investments in order to reduce the wastage of capital.
e) Adoption of a proper capital structure which does not lead the business to collapse
(Engle, Legault & Rosati, 2012).
f) Save the financial resources and plan for future goals.
g) Consumption of existing financial resources to fulfill the present and future
needs of the organization.
h) To satisfy and fulfill the various regulatory and legislation standards, for
example, employment law and accounting standards.
i) An effective plan for uncertainties.
10) Risk and Return:
Risk and return are the two co-related words in investment and deals with
budget management. Risk refers to the condition in which an investor is unable to
receive the expected return in business after investment. Return is defined as the sum
of money that an investor receives after a successful end of a business operation.
There exists a positive correlation between the aspects return and risk but there
is an important warning associated with this relationship. The warning is, there is no
guarantee which will ensure that by taking greater risks the results of the return will
also be great. Also, due to taking bigger risks the chances of losing a large amount of
capital are very high. Thus, it can be formulated that there is a positive correlation
between the potential return and the number of risks. Another aspect associated with

Student’s Name: Gagan Sharma 10
Student’s Id: 201801189
this relationship is that with lower investment due to risk aspect the chances of
earning profits are also very low (Green, 2013).

Student’s Name: Gagan Sharma 11
Student’s Id: 201801189
Practical Activity
1) The capacity of the existing financial system
The existing financial system of the organization is -
 The policies of financial management.
 Funds management.
 General ledger management.
 Management of payments and disbursements.
 Receipts management.
 Cost management.
 Financial reporting.
2) Forecasting and Documenting
The financial data gathered may include information related to –
 ABS economic data
 Balance sheet
 Trend analysis
 Budget variances
 Forecasts
 Cash flow
 Profit reports
 Operational statements
 Income statement
 Market evaluation\

Student’s Name: Gagan Sharma 12
Student’s Id: 201801189
The forecasting of data also involves various different methods, which are –
 Top-down forecasting
This process of forecasting is extended from the general level to the specific. In this
process, the overall market is analyzed and the information gained is utilized to
recognize the target mark of the organization.
 Bottom-up forecasting
This type of forecasting includes specific trends which are generalized. Some of the
different aspects that are included are the creation of a detailed budget which also
includes the various expenditure of different departments in an organization. Through
the sales revenue projects and hiring plans are also formulated.
 Projection
In the process of projections, the past data is analyzed, which evaluates the
performance of the organization in the past and with the help of the figures, future
performance is estimated. It is also possible to project sales, profits, revenues, and
other aspects with the help of projection technique.
 Model Building
In the process of model building computer analysis is conducted which displays the
impact of the market, after certain variables are included or adjusted. This is a process
of mathematical reasoning and the main question that is stated in this technique is
“what if”.
 Survey of intentions
In this technique, a survey is conducted with the target market with the main aim of
identifying future buying patterns. In this process survey of the distributors and the
sales force can also be conducted.
 Delphi Technique