Financial Management – Assignment 1 (CHAPTER 1)

BORROMEO, ELLEN BLESS JOURNEY C.

1. The goal of financial management is to generate cash and add value for the
owners. The kinds of activities that financial management deals with the three
types of financial decisions namely, investing, financing, and dividend decisions.

2. The accounting function carries out the role of systematic recording of

transactions relating to the firm’s activities in the books of accounts and
summarizing the same for the presentation in the financial statements. While the
financial management function carries out the role of interpreting and making use
of the accounting information in the analysis and review of the firm’s business
position in decision making.

3. In the perspective of the owner, the appropriate goal is to maximize shareholder

wealth but in the stakeholders’ perspective, social responsibility must be
prioritized over profitability. As we dwell into a global state of capitalism, it is
known that the big companies are controlling the market that even our planet has
been seriously damaged. There ought to be grounds to regulate these actions
otherwise our resources will continue to be depleted and there may be no
resources left for the future generation.

4. Stakeholders include employees, suppliers, customers, community, and

government.

5. Managers work for the needs of the shareholders even though the latter don’t
participate in the decision making and day-to-day activities of the firm. However,
managers might be tempted to operate in a way that it would benefit them more
than the shareholders. Thus, the system of incentives that monitors and
overcomes the problems within the firm called corporate governance assists to
this problem. Shareholders can give incentives to managers by giving them part
owners of the firm so that their interests are aligned to each other.

6. Investment decisions include determining whether to expand a plant site.

Financing decisions include determining whether to issue equity instruments and
use the proceeds to retire outstanding debt. Lastly, dividend decisions include
modifying the firm’s credit collection policy with its customers.

7. The goal is to maximize the current value per share of the existing stock or
ownership in a business firm.