Introduction
This report will elaborate on the significance of financial management and its contribution to the efficient decision-making of the business. Further, it will suggest how financial management will help enterprises in future investments and in improving their overall productivity. Moreover, this report will examine the financial productivity of the firm for the last couple of years through the financial statements. Along with that, it will also compute and determine different types of key ratios such as profitability, liquidity and efficiency to understand and determine the trends in the productivity of the firm, which is directly attributable to the overall health of an entity. Apart from that, it will also explain the concept of liquidity and assess the liquidity position of the given firm. In addition, it will also provide some recommendations which significantly assist the company in improving its corporate standard and facilitate effective decision-making in the coming year.
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Section 1 – Responsibilities of the Financial manager and the role of financial statements
It has been noted that a financial manager is considered a significant component in every business organisation because it is responsible for managing the capital most productively. Further, the primary responsibility of the manager is to ensure that all the monetary resources are engaged in the process of achieving the goals of the firm. In addition, the working style of the manager also influences the long-term and short-term planning process of an entity.
Primary responsibilities of a financial manager
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There are many significant responsibilities of a financial manager, but its primary obligation is to acquire the required capital for sustaining the operations of the firm. Further, these funds also help the firm in its growth and expansion, and it is a decision of a manager from which source the funds have been obtained. In addition, this decision affected the long-term financial standing of the firm due to the choice of source.
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It's another responsibility is controlling the cost, as it is a primary duty of a manager to manage the cost of different functions such as production, marketing and administration (Tobin 2025). Further, these costs are directly attributable to the overall profits, and an increase in costs leads to a reduction in profits for the firm. For instance, if the manager spends a heavy amount on marketing without generating substantial sales, the manager directs the department to reduce its expenses as profits decline.
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In addition, the manager also plays a significant role in making investment decisions by determining the prospective returns of different investment options (Tobin 2025). For instance, if an entity decides to acquire new machinery for automation, then it is the responsibility of a manager to calculate how much profit the machine will generate as compared to its acquisition cost.
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Along with that, it also assisted in managing the different types of risks and complexities associated with the operations and activities of the firm. Further, it has been noted that the majority of firms faced significant challenges which caused due to interest rates, currency value and fluctuating demand. It suggested various techniques, such as diversification and insurance, to oversee these risks.
Influence on short-term and long-term planning
It is a duty of a financial manager to ensure that the firm has sufficient cash for managing its day-to-day expenses, which is known as working capital management. Further, a lack of adequate funds leads to liquidity challenges. While long-term planning refers to making big decisions for the coming years and it requires a huge amount of funding and proper evaluation. For this, the manager prepares a budget and forecasts the financial outcomes to support these decisions.
Role of statements in decision making
These statements are considered very significant in the process of decision-making as they provide a clear and concise image regarding the economic health of the firm. Further, the revenue statement demonstrates the expenses and streams of revenue from which the firm has earned profits for sustaining its activities (Scott 2025). For instance, if profit is declining, the manager will explore other ways to increase sales or reduce costs.
Moreover, another component of statements is a position statement, which reflects the position of the firm at a particular point in time by assessing its resources and obligations (Kieso et al. 2024). Further, if an entity has higher obligations than resources, it might face complexities in the future, and this will lead to financial and investment management by the manager.
In addition, statements of cash flows demonstrate the avenues of cash generation and expenditure and help in assessing the overall cash position of the firm (Vincent 2024). For example, higher profits don’t guarantee an adequate balance of cash and a shortage of cash leads to the mismanagement of daily expenditures.
By examining these statements, the manager can compare the past productivity, determine complexities and plan for effective performance in the coming years. Further crucial information has been derived from these statements, which assists in computing different ratios which help in evaluating the liquidity, profitability and efficiency of an establishment.
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Section 2 – Examination and discussion of the results of the statements
2(a) Income Statement
It is that statement which shows the avenues of income and expenses of the firm for a particular period. It helps in processing the overall profitability of the entity (Scott 2025). Further, the results of this statement suggest that the firm has generated a total revenue of £ 1,695,000 with a cost of sales of £ 508,500. The results of this are that the GP is £ 1,186,500.
In addition, the firm has incurred several types of expenses such as salaries & wages, marketing rent & rates, phone & Internet and R&D worth £ 892,900. After deducting all these expenses from the GP, the resultant profit from operations is £ 293,600.
Along with that finance cost worth £ 85,000 decreased the profit to £ 208,600, and from that, around 25% has paid tax liability to the authorities. Apart from that, the final profit of the firm is £ 156,450, and it can be said that the given entity is profitable, but it is affected by R&D cost and finance cost.
2(b) Balance Sheet
It is another statement which shows the status of the firm at a particular point through its resources and obligations, and along with that, it also demonstrates the amount of shareholders' equity (Kieso et al. 2024). The presentation of this statement indicates that the given firm has assets worth £ 2,326,000, which consist of long-term and liquid resources.
Along with that, it also indicated the short-term dues of an entity, which is £ 292,600, and the firm has taken a loan from the Bank of £ 850,000. In addition, the total economic responsibilities are £ 1,142,900, and the firm has total equity of £ 1,183,100, which includes the amount of share capital, reserves and retained earnings over the last years.
The positive amount of working capital worth £ 166,100 reflects that the entity has an adequate amount of resources to pay its short-term obligations over the period.
2(c) Ratio Analysis
These indicators help in measuring the economic health of the firm over the past two years.
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ROCE – It measures the overall profitability of the firm by using its invested capital (CFI 2025). Further, it has been noted that the return on capital of the firm has improved from 30.88% to 34.38% in 2024.
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Current Ratio – It is calculated to determine the liquidity status of the firm, and it has been slightly improved from 2.38 to 2.25 (Iskandar 2020). This indicates the strong position of the firm to cover its short-term dues.
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Quick Ratio – It assesses the capability of highly liquid assets and doesn’t include inventory, and it also improved from 1.63 to 1.82, which is better for the entity (Iskandar 2020).
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Inventory days – This metric helps in identifying the number of days taken by the firm to sell out its complete inventory (Patki 2021). Further, these days are decreasing from 51 to 48, which indicates faster sales.
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Asset turnover – This ratio assesses the potential of the resources to generate revenue over the period (Tamplin 2022). It significantly improved from 167 to 172 per cent in the year 2024.
2(d) Horizontal analysis
It is the technique of financial analysis through which changes in the attributes of statements have been evaluated over the period. Further, it helps in determining key trends and patterns in the productivity of the enterprise (Kulwizira 2023). Moreover, the results of this examination indicated that the revenue increases by 14.29% along with that GP also increases by 16%. In addition, net revenue also improved by 23% however cost of sales also surged by 13%. Apart from that, expenses such as R&D rose by 19% however, interest expense reduced by 12%. Overall, it can be said that the firm reveals significant growth in sales and profits and better management of costs and its liquidity.
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Section 3 – Assessment of liquidity position and recommendations
Liquidity refers to the capacity of the firm, which helps in fulfilling short-term economic obligations by using its highly liquid resources. Moreover, in other words, it helps in identifying the amount of cash which can immediately be converted into cash as and when needed (Reschiwati et al. 2020).
Further, for enterprises such as TechMotion Automation Ltd, maintaining good liquidity is considered to be significant, which ensures the sustainability of operations and helps in preventing any financial complexities. Apart from that, the liquidity position of organisations has been measured through ratios such as the current ratios and acid test ratios.
Results of liquidity ratios
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CR – This ratio compares the short-term resources such as cash, receivables and inventory with obligations which has to be paid within a year, such as short-term debts (Iskandar 2020). It has been noted that the CR in the year 2023 is 2.38, which improved to 2.25 in 2024. It means for every £ 1 of debt the entity has £ 2.55 worth of resources to pay. Apart from that, a ratio higher than one is considered to be good, and in this case, the result indicates that the firm has a superior position in sustaining its short-range obligations.
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QR - It is another measure of liquidity in which inventory is not included and assess the ability of highly liquid assets (Iskandar 2020). The result indicates the improvement in the ratio from 1.63 to 1.82 in 2024. As the ratio is higher than one is considered to be safe and TechMotion is in a safe position to cover its short-range obligations without depending on inventory
Assessment of liquidity position
The results of the liquidity ratios reveal a strong and healthy economic status of the firm, as both ratios have improved in the past couple of years and increased the strength of the firm’s resources. It is considered a positive indication because the firm has improved its management of cash and decreased its dependence on inventory to cover its current obligations.
Recommendations
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It has been recommended to the firm to reduce its time to collect payment from consumers by decreasing the collection cycle and increasing frequent reminders.
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Further, the firm has to improve its inventory days, as better management of inventory leads to a higher balance of cash and provides flexibility. Further, it has improved by offering discounts and sales promotions.
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In addition, in the future, the firm has to explore other sources of cash, such as short-term financing methods, to improve its credit lines and ensure an adequate balance of cash to fulfil its obligations.
Conclusion
The above examination assessed the economic productivity of TechMotion Automation Ltd for the last two years. Further, it elaborated the significance of financial management and the contribution of the key statements in examining the productivity of the firm in terms of liquidity, profitability and efficiency by supplying significant data. Moreover, the results of ratios reflected the improvement in all the measures of productivity and indicated effective management of resources. In addition, the horizontal examination suggested positive growth in revenue and profits in the past two years. Apart from that, the examination of liquidity ratios reveals a strong standing of the firm and recommendations were also provided, which assist in further improvement. Overall, it can be said that the firm has a strong standing and has a solid foundation, which facilitates growth in the coming period.
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