John Edward Pangilinan

BS Accounting Information System

1. What is Finance? Define Business Finance.

 Finance is the management of large amounts of money, especially by
governments or large companies.
 Business finance, the raising and managing of funds
by business organizations. Planning, analysis, and control operations are
responsibilities of the financial manager, who is usually close to the top of
the organizational structure of a firm.
2. Explain the types of Finance.
 Personal finance is a term that covers managing your money as well as
saving and investing. It encompasses budgeting, banking, insurance,
mortgages, investments, retirement planning, and tax and estate planning.
 Corporate finance is the division of finance that deals with how corporations
deal with funding sources, capital structuring, and investment
decisions. Corporate finance is primarily concerned with maximizing
shareholder value through long and short-term financial planning and the
implementation of various strategies.
 Public finance can be defined as the study of government activities, which
may include spending, deficits and taxation. The goals of public finance are
to recognize when, how and why the government should intervene in the
current economy, and also understand the possible outcomes of making
changes in the market.
3. Discuss the objectives of financial management
 Profit maximization - Main aim of any kind of economic activity is earning
profit. A business concern is also functioning mainly for the purpose of
earning profit. Profit is the measuring techniques to understand the business
efficiency of the concern.The finance manager tries to earn maximum profits
for the company in the short-term and the long-term. He cannot guarantee
profits in the long term because of business uncertainties. However, a
company can earn maximum profits even in the long-term, if:
The Finance manager takes proper financial decisions.; He uses the finance
of the company properly.
 Wealth maximization - Wealth maximization (shareholders’ value
maximization) is also a main objective of financial management. Wealth
 maximization means to earn maximum wealth for the shareholders. So, the
finance manager tries to give a maximum dividend to the shareholders. He
also tries to increase the market value of the shares. The market value of the
shares is directly related to the performance of the company. Better the
performance, higher is the market value of shares and vice-versa. So, the
finance manager must try to maximize shareholder’s value
 Proper estimation of total financial requirements - Proper estimation of total
financial requirements is a very important objective of financial
management. The finance manager must estimate the total financial
requirements of the company. He must find out how much finance is
required to start and run the company. He must find out the fixed capital
and working capital requirements of the company. His estimation must be
correct. If not, there will be shortage or surplus of finance. Estimating the
financial requirements is a very difficult job. The finance manager must
consider many factors, such as the type of technology used by company,
number of employees employed, scale of operations, legal requirements, etc.
 Proper mobilization - Mobilization (collection) of finance is an important
objective of financial management. After estimating the financial
requirements, the finance manager must decide about the sources of finance.
He can collect finance from many sources such as shares, debentures, bank
loans, etc. There must be a proper balance between owned finance and
borrowed finance. The company must borrow money at a low rate of
interest.
 Proper utilization of finance - Proper utilization of finance is an important
objective of financial management. The finance manager must make
optimum utilization of finance. He must use the finance profitable. He must
not waste the finance of the company. He must not invest the company’s
finance in unprofitable projects. He must not block the company’s finance in
inventories. He must have a short credit period.
 Maintaining proper cash flow - Maintaining proper cash flow is a short-term
objective of financial management. The company must have a proper cash
flow to pay the day-to-day expenses such as purchase of raw materials,
payment of wages and salaries, rent, electricity bills, etc. If the company has
a good cash flow, it can take advantage of many opportunities such as
getting cash discounts on purchases, large-scale purchasing, giving credit to
customers, etc. A healthy cash flow improves the chances of survival and
success of the company.
4. Critically evaluate various approaches to the financial management.
 Traditional View - Financial management is primarily concerned with
acquisition, financing and management of assets of business concern in
order to maximize the wealth of the firm for its owners. The basic
responsibility of the Finance manager is to acquire funds needed by the firm
and investing those funds in profitable ventures that will maximize firm’s
wealth, as well as, yielding returns to the business concern.
 Modern View - The globalization and liberalization of world economy has
caused to bring a tremendous reforms in financial sector which aims at
promoting diversified, efficient and competitive financial system in the
country. The financial reforms coupled with diffusion of information
technology has caused to increase competition, mergers, takeovers, cost
management, quality improvement, financial discipline etc.
 Liquidity and Profitability - Ezra Solomon states that “liquidity measures a
company’s ability to meet expected as well as unexpected requirements of
cash to expand its assets, reduce its liabilities and cover up any operating
losses.” The balancing of liquidity and profitability is one of the prime
objectives of a Finance manager. One of the important problems faced by
Finance manager is the dilemma of liquidity vs. profitability. Liquidity
ensures the ability of the firm to honour its short-term commitments.

5. Explain the Scope of Financial Manangement.

Financial Management means planning, organizing, directing and

controlling the financial activities such as procurement and utilization of
funds of the enterprise. It means applying general management principles to
financial resources of the enterprise. The other scope of financial
management also includes the acquisition of funds, gathering funds for the
company from different sources, assessment and evaluation
of financial plans and policies, allocation of funds, use of funds to buy fixed
and current assets and appropriation of funds.
In simple terms objective of Financial Management is to maximize the
value of firm, however it is much more complex than that. The management
of the firm involves many stakeholders, including owners, creditors, and
various participants in the financial market. 
Scope of Financial Management. Financial management is an organic
function of any business. Any organization needs finances to obtain physical
resources, carry out the production activities and other business operations,
pay compensation to the suppliers.
 6. Discuss the role of Financial Manager.

Financial managers perform data analysis and advise senior managers

on profit-maximizing ideas. Financial managers are responsible for the
financial health of an organization. They produce financial reports, direct
investment activities, and develop strategies and plans for the long-term
financial goals of their organization. Financial managers typically: Prepare
financial statements, business activity reports, and forecasts, Monitor
financial details to ensure that legal requirements are met, Supervise
employees who do financial reporting and budgeting, Review company
financial reports and seek ways to reduce costs, Analyze market trends to
find opportunities for expansion or for acquiring other companies, Help
management make financial decisions.

The role of the financial manager, particularly in business, is changing

in response to technological advances that have significantly reduced the
amount of time it takes to produce financial reports. Financial managers’
main responsibility used to be monitoring a company’s finances, but they
now do more data analysis and advise senior managers on ideas to maximize
profits. They often work on teams, acting as business advisors to top
executives. Financial managers also do tasks that are specific to their
organization or industry. For example, government financial managers must
be experts on government appropriations and budgeting processes, and
healthcare financial managers must know about issues in healthcare finance.
Moreover, financial managers must be aware of special tax laws and
regulations that affect their industry.

7. Explain the importance of Financial Management.

Financial management is very important in the field of increasing the wealth
of the investors and the business concern. Ultimate aim of any business concern
will achieve the maximum profit and higher profitability leads to maximize the
wealth of the investors as well as the nation. Finance is the lifeblood of business
organization. It needs to meet the requirement of the business concern. Each and
every business concern must maintain adequate amount of finance for their smooth
running of the business concern and also maintain the business carefully to achieve
the goal of the business concern. The business goal can be achieved only with the
help of effective management of finance. We can’t neglect the importance of
finance at any time at and at any situation.
 Finance is always of great importance, be it in a business or in one’s
everyday life. People confront financial crisis and need to tackle financial risks on
a daily basis. As it is important to manage risks in business, it is equally important
to manage risks in life as well. Risk is nothing but an uncertain event that might
damage your assets and when it is financial risks it creates loss of finance.
Managing risks include few steps: Firstly, one needs to identify a risk followed by
assessing it and thereafter reducing and controlling risks. This is relevant in project
management and business process and also in managing risks in everyday life. You
can face financial risks at different situations such as buying a car or investing on
gold and so on. Before understanding how to tackle financial risks in everyday life,
let’s have a look at the types of financial risks that one might witness in their daily
life.