Understanding Financial Management Assignment Sample

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Introduction

Financial management is concerned with controlling, monitoring and reporting the financial resources of the organization. In the business unit, manager plays a vital role in managing and using monetary resources prominently. The present study will be based on UK organization i.e. Harvest Healthcare which manufactures & supplies medical and dental instruments. The report will outline Harvest Healthcare`s sources of finance, financial stakeholders and their expectations. Further, it will explain the importance of cash flow forecasting, financial performance indicators and budget budget-setting process of the organization. The report also assesses Harvest Healthcare’s organizational performance. For students seeking help in assignment writing, this study offers clear insights into managing financial resources effectively.

1.1 Sources of finance or funding for the organization

Source of finance refers to the origins from where a business gets finance for business activities. There are two main sources of finance from which businesses often get funding including external and internal sources. Harvest Healthcare finances its business operations via internal and external sources. It is as under:

Internal Sources: It refers to financing funds within a business. Harvest Healthcare use,

• Retained Earnings: It means a portion of the profit that remains left after paying all expenses and dividends (Ball et al, 2020). Harvest Healthcare use retain earning to invest back into the company and run its business operations. It is a continuous source of funds with no explicit cost in the form of interest.
• Sale of assets: To raise finance internally Harvest Healthcare sells its underperforming and non-core assets such as machinery, and equipment. This source of finance helps the business to raise funds quickly.

External Sources: It refer to the sources that help the business generate funds outside of business. Sources used by Harvest Healthcare are as follows-

• Equity capital: Harvest Healthcare raise finance externally by issuing shares to the public. This source helps the business to raise a sufficient amount of finance for the business. Features of source include furnishing ownership rights to investors, high liquidity, capital appreciation and so more.
• Bank loan: It refers to a fixed amount of money that a business gets from the bank by paying pre-decided interest on the amount (Huang et al, 2022). Harvest Healthcare can raise finance from the bank to expand its business operation and fulfilled the need for greater amount of money. It is one of the short-term sources of finance appropriate for fulfilling requirements of large amounts of finance.

1.2 Evaluation of various financial stakeholders and their expectation to organization

Financial stakeholders refer to the individual who are interested in operations and financial position of the organization. The main financial stakeholders of Harvest Healthcare and their expectation to company is as under:

• Investor: Investor is one of the main financial stakeholders in the company as they put their money in the business entity to get better financial return. The investor expectation to company includes increasing their return on investment in the form of dividend as well as capital appreciation or mixture of both (Akther and Xu, 2020). Their expectation include that Harvest Healthcare generate more profit so that get better return on investment.
• Employees or manager: This is internal financial stakeholders of the company, responsible for managing and conducting operation or activities of the business. Employees and managers of Harvest Healthcare expect that company increase its profit generating capacity or build a strong financial position so that the concern stakeholders get a increasing a good remuneration in form of wages and salary.
• Government: It is also one of the main financial stakeholders as government collect corporate tax and payroll tax from organization and its employees, which is great source of revenue. The stakeholder expects that organization pay taxes promptly.
• Customer: Customer is also a stakeholder of the company as they plays important role in deciding whether the organization will success or not. Customer expects from the business that it provides quality goods and services according to the needs at a affordable pricing.

1.3 Significance for cash flow forecasting and cash flow management

Cash flow forecasting and cash flow management plays an important role in the success of the business. Cash flow forecasting means a procedure of estimating the cash flow of business in and out over a particular period of time. It helps the business in estimate future sales and expenses. Cash flow forecasting is important for the planning for business growth (Dadteev, Shchukin and Nemeshaev, 2020). For instance, if Harvest Healthcare forecast cash deficit in business, then they prevent their expenses on activities like marketing and payouts. In addition, if business forecast excess fund than company will able to successfully expand their business operation, result in growth. It also help the business to grab greater number of investors as cash flow forecasting provides clarity to investor, helps in make investment decision correspondingly business able to expand its capital. In addition, forecasting assists business to take preventive steps earlier by review cash flow at particular point of time.

Apart from this, cash flow management refers to an act of tracing and controlling of inflow and outflow of cash in business in order to appropriately forecast requirements of cash flow. Cash flow management plays an important role as it provides clear picture to business regarding its cost versus revenue, allows business to ensure whether it have sufficient funds to manage its expenses while making profits (ВЛАСЕНКО, 2023). It helps the business to build strategies to maintain good financial position of company.

1.4 General assessment of organizational performance

In finance, ratio analysis tool is highly significant which helps in measuring, evaluating and interpreting financial statements of the firm prominently. Ratio analysis of Harvest Healthcare for the period of 2022 and 2023 is as under:

Gross Profit of Harvest Healthcare

From the above evaluation it is identified that in 2022 gross profit of Harvest Healthcare was 28.91%, whereas in 2023 it reached on 28.54%. Company’s sales have been increased but not with the significant rate and higher expenses may cause of decline in GP ratio. Thus, focus needs to be placed on undertaking competent marketing strategies and promotional activities. This will help in enhancing customer base, market share, sale revenue and thereby GP to the significant level.

Operating Profit

Harvest Healthcare`s operating profit is showing declining trend from 10.18% to 8.63% significantly. Due to high administrative expenses and cost of goods sold firm faced difficulty in gaining enough profit. To overcome this, company should employ budgetary control tools which helps in evaluating over expenses and gives indication about the areas where corrective measures need to be taken.

Current Ratio

In 2022 and 2023, current ratio of Harvest Healthcare accounts for 4.47 & 4.12 respectively. This is higher than the ideal ratio (2:1) which shows that companyhas maintained more than enough liquidity. Thus, rather than maintaining over liquidity, firm should focus on investing excessive fund in the productive activities. This will help in gaining higher returns and thereby improves profitability as well.

Debtor/ Creditor turnover ratio

Outcome of efficiency ratio analysis clearly shows that, in 2023, company had to wait more for receiving funds from debtors. This in turns directly impacts the working capital position of the company and thereby operating activities. Thus, for improving debtor turnover period company needs to make significant changes in the existing policies. Further, creditor’s turnover period inclined from 48 to 61 days which prove to be beneficial for the firm. Moreover, Harvest Healthcare can the fund in other business activities or practices.

Understanding Financial Management Assignment Sample

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2.1. Role of financial performance indicators in monitoring the attainment of objectives

Financial performance indicators refers to metrics use by company to measure, trace and evaluate the financial health of the business. This ranges different categories like profitability, solvency, liquidity, efficiency and valuation.

• Profitability: This indicator enable the company to measure how well a company is performing in regards to sell while keeping expenses low (Charles and Ochieng, 2023). Company use gross, net, operating and other profit of ratio. High percentage of profitability shows that company attains objectives effectively.
• Solvency: The KPI measure long-term financial health of the organization by analyzing how effectively company able to pay its long-term debt.
• Liquidity: The role of KPI includes measuring short-term debt obligations based on short-term assets. It includes ratio such as current ratio, between 1.2 to 2 is considered as best, representing that organization attain its objectives.
• Efficiency: Inventory turnover, account receivable etc. ratios are used as KPI to monitor performance of the business. This ratio helps in identify how well a company use its assets to generate revenue.

2.2 Purpose of main financial document used in company

The main financial document of Harvest Healthcare includes income statement, cash flow statement and balance sheet. This financial document plays an important role in representing organization`s financial position including revenue, cost, assets, liabilities, cash flow from investing, operating as well as financing activities. The purpose of the document is as under:

• Income statement: The primary purpose of income statement includes demonstrating company`s expenses, gains, losses or convey the information of profitability and business activities to the stakeholders of the business (Palepu et al, 2020). Income statement allows the management to make informed decision regarding pricing, strategic planning, budgeting and enable the company or other stakeholder to compare company performance with prior periods or other businesses.
• Cash flow statement: It is record of inflow and outflow of cash within the business. The main purpose of the statement is to furnish details of cash inflow and outflow from different investing, financing and operating activities in a given period of time. This helps the business to make financial strategy accordingly to get competitive edge.
• Balance sheet: It is a financial document contain details of company`s assets and liabilities at a particular period of time. The purpose of the balance sheet is to reveal the financial status or position of the organization (Mathisen and Pellechio, 2020). The other purpose includes determining business ability to pay obligations, recognize its asset value, analyze ability to pay dividend, calculate business net worth and so more.

3.1 Process of budget setting

Budget setting refers to the ability of efficiently plan, allocate as well as control financial resources to attain strategic objectives. The budget setting process of Harvest Healthcare includes:

• Establishing goals and objective: In the budget setting process first business set a goals and objectives for the business such as increasing profitability by 10%, decline expenses and so more. Accordingly prepares a budget.
• Collecting Information: The second step for budget setting includes reviewing previous budget and gather data of company`s revenue, expenses, gains and losses. In addition, business estimate fixed and variable cost for particular period to determine total cost.
• Budget preparation: Based on the collected data, Harvest Healthcare prepare a budget considering all kinds of expenses and income will incur in upcoming year. At this step, company focus on revenue projection, capital expenditure, contingencies, budget categories and so more (Bergmann et al, 2020).
• Negotiation and Approval: After the preparation of the budget, finance department take approval from the top management. At this stage, different department provide their input to effectively align the business.
• Implementation: In reference to budgetary approval, next step is implementing budget into action. According to the budget expenditure done by each department within the business.
• Monitoring and Controlling: The step includes tracing the financial performance of business in against of budget. It help in examine actual income and expenses. Effective monitoring ensures timely corrective actions to maintain budgetary alignment.

3.2 Use of budgetary techniques to control cost

Budgeting techniques refers to accounting techniques that measure and compares actual outcome with the budget. Harvest Healthcare use several budgeting techniques to control cost of its operation. It uses zero based budgeting technique. According to this, company build a budget from zero each year to verify that all elements remain cost-effective, relevant as well as drive saving within the business. This technique tackle cost at the root by evaluating the expenses for company`s activities in a pragmatic, structured and dispassionate way (Matějka, Merchant and O'Grady, 2021).

In addition, value proposition budgeting is another budgeting technique that help the business to avoid unnecessary expenditure within the operations. The technique considered various factors at the time of preparing budget to control costs such as the reason of amount included in cost, thinking off whether it create value for customer, staff or other stakeholders, result in control cost in effective manner within business.

Conclusion

From the above report, it can be summarized that financial management plays an essential role in ensuring that business effectively manages its resources. The report outlined financial position of Harvest Healthcare via assessing its organizational performance through ratio analysis. It is analyzed that company`s gross and operating profit margin get declined in 2023 due to increase in expenses as compared to 2022. Thus, competent measures need to be undertaken for improving the firm’s financial performance. Further, it highlighted that Harvest Healthcare use retained earnings, bank loans and so more to finance its activities. Besides this, it can be inferred from the evaluation that cash flow forecasting or cash management aids in operating the business efficiently.

References

Books and Journals

• Akther, T. and Xu, F., 2020. Existence of the audit expectation gap and its impact on stakeholders’ confidence: The moderating role of the financial reporting council. International Journal of Financial Studies, 8(1), p.4.
• Ball, R., Gerakos, J., Linnainmaa, J.T. and Nikolaev, V., 2020. Earnings, retained earnings, and book-to-market in the cross section of expected returns. Journal of Financial Economics, 135(1), pp.231-254.
• Bergmann, M., Brück, C., Knauer, T. and Schwering, A., 2020. Digitization of the budgeting process: determinants of the use of business analytics and its effect on satisfaction with the budgeting process. Journal of Management Control, 31(1), pp.25-54.
• Charles, M. and Ochieng, S.B., 2023. Strategic outsourcing and firm performance: a review of literature. International Journal of Social Science and Humanities Research (IJSSHR) ISSN, pp.2959-7056.
• Dadteev, K., Shchukin, B. and Nemeshaev, S., 2020. Using artificial intelligence technologies to predict cash flow. Procedia Computer Science, 169, pp.264-268.
• Huang, H.H., Kerstein, J., Wang, C. and Wu, F., 2022. Firm climate risk, risk management, and bank loan financing. Strategic Management Journal, 43(13), pp.2849-2880.
• Matějka, M., Merchant, K.A. and O'Grady, W., 2021. An empirical investigation of beyond budgeting practices. Journal of Management Accounting Research, 33(2), pp.167-189.
• Mathisen, J. and Pellechio, A.J., 2 Main Objectives of the Balance Sheet Approach. In Using the Balance Sheet Approach in Surveillance. International Monetary Fund.
• Palepu, K.G., Healy, P.M., Wright, S., Bradbury, M. and Coulton, J., 2020. Business analysis and valuation: Using financial statements. Cengage AU.
• ВЛАСЕНКО, В., 2023. DIRECTIONS FOR THE FORMATION OF AN ADAPTIVE CASH FLOW MANAGEMENT MECHANISM AT SMALL AND MEDIUM-SIZED BUSINESS ENTERPRISES UNDER CONDITIONS OF NATIONAL ECONOMY RECOVERY. MODELING THE DEVELOPMENT OF THE ECONOMIC SYSTEMS, (4), pp.297-304.

Online

• Harvest Healthcare Ltd. 2025. Online. Available through: <https://tinyurl.com/2kf8brwv>.