Financial Management Report

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 Table of Contents

Introduction..........................................................................................................................2

Financial Management and its Significance........................................................................2

Financial Statements and use of Ratios...............................................................................3

Income Statement............................................................................................................3

Balance Sheet...................................................................................................................4

Cash Flow Statement.......................................................................................................5

Ratios...............................................................................................................................6

Profitability Ratios.......................................................................................................6

Liquidity Ratios...........................................................................................................7

Efficiencies Ratios.......................................................................................................7

Other Ratios.................................................................................................................7

Reviewing Business Performance.......................................................................................7

Business Profitability.......................................................................................................8

Business Liquidity...........................................................................................................8

Business Effectiveness.....................................................................................................9

Ways of Improving Business Performance..........................................................................9

Conclusion.........................................................................................................................10

References..........................................................................................................................11

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Appendix............................................................................................................................12

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Introduction

Business finance is a process that undertaken by companies to raise and maintain funds
for the organizations. In this competitive age the business strategy is getting more and
more complicated and for this the companies must emphasis finance and also should
adopt investment strategy properly (Robinson, 2020). The study evaluates the impact of
financial ratios, their acceptability, evaluation and development on the performance of
business, income statements and balance sheets.

Financial Management and its Significance

Financial management is compile with several techniques of planning, coordinating,

leading and overseeing the financial activities of business organizations. The appropriate
handle of financial operations helps the companies to gain sustainability, profitability and
as well as growth. It creates a roadmap to meet the expectations of the stakeholders. It is
significant for raising fund for shareholders and as well as for the financiers (Frenso and
Alvarez, 2013). So, the financial management provides several benefits to an
organizations and the advantages are provided below.

 Financial management supports the organizations to take beneficial strategic

decisions.
 The uses of financial management ensure the effortless budgetary control in an
organization.
 It helps the companies to improve the managerial capabilities.
 It ensures the accuracy and authenticity of the information.
 It increases the profit margin of the companies.

The variables of data management have much significance to evaluate the relevancy of
financial management. The companies must define their income, expenses and liabilities
in the initial period. The companies also should exhibit at the business expo. It is further
more difficult to provide the financial data to the third parties. The financial data of a

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company can be classified into two parts, internal and external. Internal data is useful to
understand the overall activities and conditions. On the other hand, external data used to
provide details to the shareholders, auditors and also to the government (Mason, 2014).
So, the balance between internal and external data is much important for any companies
and for this financial management is essential.

Financial Statements and use of Ratios

Finance is considered as the heart of any companies. Besides examining several ratios, it
is also important to evaluate finance and invest initiative sources. The application of
financial factors and assessment of standards of past years both are involved in the ratio
analysis. Through this assessment the companies can choose the proper initiatives to
ensure the betterment of the company. The business atmosphere can have evaluated
through using several financial ratios. But the companies must have limited to pertinent
information of finance in these ratios.

Income Statement

The income statement is combined with several expenditures and revenues. It evaluates
the difference among revenues but also costs that encourage profitability also released in
this statement. The income statement is basically a financial statement that constructed
with cost and revenues of a specific period of time. The income statement identifies
several types of revenue functions within the organizations. To read an income statement,
one must have the knowledge whether the profit is pre or post taxes. The organizations
must prepare the income statement to picturize the firm and evaluate if the company is
profitable or not. The sales margins are the primary factor to be considered in the income
statement (Grant, 2021). Then the sale costs and discounts needed to be subtracted and
then the cost of products sold should subtracted and to calculate the prior net revenue the
sum must be taxed. In the end, after subtracting the taxes, the net income after tax is
calculated.

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 Figure: Profit and Loss Overview

Source: Fresno, M.S. and Alvarez, F, (2013)

Balance Sheet

The balance sheet is referred as the summary of assets, liabilities, and stakeholders’
equity of a company. It is considered as the necessary part of a company. The
comprehend of all assets and liabilities are the elements that determine the characteristic
of a company. Unless the proper understanding of assets and liabilities the investors
would lose interest and the company will not be able to sustain in the market. The data of
previous years are used to calculate the balance sheet (Akter et al., 2016). The companies
balance the assets invariably with the liabilities through it. The balance sheet mainly used

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to define the macroeconomic position of a company. The formation of balance sheet is
provided below.

Figure: Structure of Balance Sheet

Source: Mason (2014)

Cash Flow Statement

Cash is considered as the soul of a company. All the activities of a company conduct
around it and without it no company can be operated the essential tasks. In the cash flow
statement, the cash inflow and outflow are appeared. This is considered as a critical
business assessment. In this statement, numerous parts are presented such as asset
acquisition, debtor repayments, investments and so on (Hoerl and Snee, 2020). The cash
flow has the ability to analyze the potentiality of a company of earning money in future.
The statement also has the ability to evaluate the financial capabilities of a company to
meet the financial demand.

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 Figure: General Structure of cash flow statement

Source: Robinson (2020)

Ratios

Through comparing two rows of data of a financial report a ratio is calculated. The
companies applied the ratio analysis to evaluate the overall financial aspects,
competencies and attractiveness. The outcomes of ratio analysis are provided below.

 Evaluate the differences between current and previous financial condition.

 The management functions are distinguished through it.
 Ratios are applied to evaluate the competitive position of one company.
 The methodologies need to evaluate the debt ratios, liquidity ratios, and so on.

Types of Ratios

Profitability Ratios

The primary goal of all business organizations is to earn efficient profits. The profitability
margins of the companies are evaluated through several methodologies. The profitability

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ratio is the best way to measure profitability of the companies. This ratio also has the
ability to forecast revenues and manage operating margins. It is the illustration of gross
and profit margin.

Liquidity Ratios

The liquidity ratio applied to address the short obligations of the organizations. This ratio
maintains a proper balance amongst the assets and obligations that are existed. This ratio
has the capability to evaluate the financial condition of any companies. The liquidity ratio
is also known as current ratio.

Efficiencies Ratios

It is hard to utilize the whole resources of a company. The specific assets and services
also needed to deployed with proper management (Ali and Anwar, 2021). The efficiency
ratios have the capability to help the companies in obtaining funds from lenders and also
returning outstanding debts. The efficiency ratios also known as inventory turnover ratios
and asset turnover ratios.

Other Ratios

The companies applied a variety of ratios to evaluate different aspects of the

organization. The uses of resources of an organization can evaluated through ratio
analysis to see whether the resources are used properly. The investors should use the
business ratios while taking and selecting any initiatives.

Reviewing Business Performance

The company owners inspired to run their business in a more efficient way through
business performance. The companies must be evaluated their effectiveness to identify
the current condition. The companies must gain information, review the business plan,
and evaluate each performance to ensure a sustainable growth.

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Business Profitability

At the end of the year, profitability efficiency indicates that the rates have increased by
127 percent in 18987. The total was 43057 in during 2016. According to the calculation,
the gross profit margin is 42.8 percent and the profit margin is 22.7 percent. The math
evaluated that if Aster sells for £1, then the company will earn £42.8 and in this case the
operational costs will be £22.7.

Business Liquidity

Business liquidity means the capacity of an organization to cover short-term expenses

and also creditors’ debt. The companies employ quick to assess liquidity and current
ratios. In the current situation, the company has £222 in resources and £147 in liquid
liabilities according to the direction. So, the liquidity system of the company is not
maintained properly.

The liquidity graph showed in 2016 that, the company has inadequate liquidity. The graph
also identifies that it employs used in comparison to liquidity. It made growth from 618
to 649, means a 10% improvement in customer contentment.

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Business Effectiveness

The business tasks must be carry out by the companies effectively. To ensure effective
management the companies need to maintain the standard guidelines properly. Business
efficiency is a state that indicates the capability to deal with several forms of liability and
control costs (Broyles, 2020). The companies key prioritize is to enhance the efficiency
of the company gradually. In this case, the assets and as well as the costs of the
companies must be balanced and to ensure this the evaluation of business efficiency is
must. The turnover ratio of the company indicates that it invested £1 but received a £2.26
return. So, the return on investment of the company is 226%. In 72 days, the company
must settle the loan but also they need to wait for the leader’s respond for 54 days. So, the
company needs 105 days to change the equity. The perceptions of the company are
identified as positive. The explanation of the computation is provided in the appendix
section.

Ways of Improving Business Performance

To ensure the enhancement of business performance the company have to undertake

several necessary steps. The companies must evaluate the performance statement to make
decisions in an informed way. To carry out an effective strategy, the overall situations of
the company must be described. The companies must engage with several techniques to
boost the performance of business. The strategic managers must change the structure of
the company positively and make recommendations to ensure the further improvement of

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the company (Hussain and Sunardi, 2020). The managers need to evaluate the current and
future appearance of the company in the starting point of undertaking tasks. It could help
the managers to determine what changes should be undertaken in current situation to
enhance the future of the company. It will also provide a guideline of requirements of
future and also support the company to set a well-defined aim. So, a well-defined aim is
needed to undertake performance assessment and also it needs a good preparation. To
obtain the desired objectives, the company must ensure an effective preparation to
undertake necessity steps. The company gain performance route through conduct
effective planning in the operational activities. The recruiting of talented employees in
the begging of the process help to enhance the business performance effectively. The last
step of this process is to monitor each of the step effectively (Finch et al., 2017). The
consistent application of all the steps may ensure the performance both rewarding and
simple.

The companies must impose their techniques in the initial stage to gain fresh business
ideas and concepts. A variety of effective strategies, ensure a sustainable position of any
companies. Marketing technique is one of the most important techniques in the company
as it involved directly with sales. Marketing strategy referred as a strategy that maximize
the utilization of assets and simplify the sales process through implementing several
marketing promotions (Begenau, 2020). The companies can gain the sustain energy
though implementing several marketing strategies effectively. The company can gain
competitive advantages and market its goods and services through effective pricing
though this strategy. The companies at first need to address its short term goals to reduce
waste and mange inventories in a better way. The company also can undertake working
capital management in the activities to reduce unnecessary expenditure while increasing
its income.

Conclusion

In this present situation, the companies demand operational business funding to stay
afloat. The companies will face much difficulties if it is not capable to sustain adequate
funding. In this research, guidelines for business finance, financial planning and their

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relevance are evaluated and described briefly. The ratio assessment, evaluation of
business performance, processes if generating company’s performance and several
marketing techniques are also evaluated in this report. These evaluations will help the
organizations to take informative decisions, enhance performances, and enable companies
to meet the objectives and solve issues effectively to run business smoothly. So, an
effective marketing plan is essential for staying afloat in the competitive industry.

References

Robinson, T.R. (2020). International Financial Statement Analysis Workbook. S.L.: John
Wiley & Sons.

Fresno, M.S. and Alvarez, F. (2013). Financial statement analysis: a practitioner’s guide.
Hoboken, N.J.: Wiley.

Mason, P. (2014). "Cash flow" analysis and the fund's statement. New York, NY.:
American Institute Of Caps.

Grant, R.M., 2021. Contemporary strategy analysis. John Wiley & Sons.

Akter, S., Wamba, S.F., Gunasekaran, A., Dubey, R. and Childe, S.J., 2016. How to
improve firm performance using big data analytics capability and business strategy
alignment?. International Journal of Production Economics, 182, pp.113-131.

Ali, B.J. and Anwar, G., 2021. Marketing Strategy: Pricing strategies and its influence on
consumer purchasing decision. Ali, BJ, & Anwar, G.(2021). Marketing Strategy: Pricing
strategies and its influence on consumer purchasing decision. International journal of
Rural Development, Environment and Health Research, 5(2), pp.26-39.

Broyles, J., 2020. Financial management and real options.

Husain, T. and Sunardi, N., 2020. Firm's Value Prediction Based on Profitability Ratios
and Dividend Policy. Finance & Economics Review, 2(2), pp.13-26.

Finch, G., Goehring, B. and Marshall, A., 2017. The enticing promise of cognitive

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computing: high-value functional efficiencies and innovative enterprise capabilities.
Strategy & Leadership.

Begenau, J., 2020. Capital requirements, risk choice, and liquidity provision in a
business-cycle model. Journal of Financial Economics, 136(2), pp.355-378.

Hoerl, R.W. and Snee, R.D., 2020. Statistical thinking: Improving business performance.
John Wiley & Sons.

Appendix

The net profit of 2017 is £? The net profit of 2016 was 18987000. TO use the financial
factors of 2017, the outcomes are:

A continuious turnover intensified by 5.6% in 2016 which is paid in the year of 2016

Here, Gross Profit = 81125

Net Proft = 43057

Net profit increased in 2016 by 1227%

Shareholder’s equity enlarged by 32.9%, that is 20745

The quick ratio is 1.47:1

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The current ratio is 2.22:1

Profit of this financial year = 43057-18987 = 24070

= 24070/18987

= 1267*100

= 127%

Shareholder’s equity = (63057+20745) = 83802

Gross Profit = Turnover – Direct Cost

= 189711 – 108586 = 81125

Gross Profit Margin = Gross Profit / Sales * 100

= (81125/189711) * 100 = 42.8%

Net Profit Margin = Gross Profit – Non Operating Expense

= 81125-38038 = 43057

Net Profit Margin = Net Profit / Sales

= 43057/189711 = .226*100 = 22.7%

Current Assets & to current liabilities = Current assets / Current liabilities * 100

= 83349/37928 * 100

= 2.22:1

Quick Ratio = Current Assets – Current Liabilities

= 83349/28571

= 1.47:1

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Asset Turnover = Turnover / Net Asset

= 189711/83815

= 2.26

Stock Turnover = Stock / Cost of Sales * 365

= 28571/98975 * 365

= 105.36

Receivable days = Debtors / Turnover *365

= 26376/179587*365

= 54 days

Payable days = Trade creditors / Cost of sales *365

= 19493/98975*365

= 72 days

Notes for financial statement at 31st Dec, 2016

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