ASIAN DEVELOPMENT FOUNDATION COLLEGE

P. Burgos St., Tacloban City

MODULE #1: BAP 1 (FM)

(Financial Management)

Topic: An Overview of Financial Management

o Finance – is a term for matters regarding the management, creation, and study of money and investments.
It can be broadly divided into three categories:
a. Public finance
b. Corporate finance
c. Personal finance

o 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.

o Goals of Financial Management

1. Maximization of the value of the firm (Valuation Approach) – the main goal of financial management
is to maximize not profit alone, but the maximization of overall value of the firm.
 In considering investment proposals or decisions, the financial manager should not only
consider profit, he must also consider among other things the:
a. Risk attached to the investment proposal or the company’s operation
b. Time design as to when and how the profits will flow into the company
c. The quality and reliability of the profits reported by the firm.
2. Maximization of Shareholder’s Wealth - is considered to be the expansive goal of the firm.
 Managers have no direct control of the market value of the firm’s stocks. The market value of
stocks may not necessarily be high even if the company proves to be profitable and stable.
3. Social Responsibility and Ethical Behaviour – is an issue that needs to be considered.
 Some corporations who have chosen to follow the “enlightened” path of being socially
responsible, argue that socially responsible measures and actions may not necessarily be too
costly since they advertise heavily.

o Functions of Financial Management

1. Functions on the Daily Basis
a. Cash management
b. Inventory management
c. Credit management
d. Fund receipt
e. Disbursement management
2. Not done on daily basis but rather irregularly
a. Company stock and bond issuance
b. Capital budgeting
c. Creating dividend policies
 o Financial Manager’s Responsibilities
1. Forecasting and Planning – he must able to work together with other managers in formulating
strategic as well as operative plans necessary to form the company’s desired position.
2. Making crucial investment and financing decisions – the financial manager must help decide on the
appropriate amount of PPE to be acquired and determine the sources of funds to finance such
acquisitions.
3. Coordinating and controlling – the financial manager works and coordinates with other executives to
guarantee efficient operation of the firm.
4. Trading in financial markets – it is crucial for financial managers to have their “hands on dealings”
with the financial markets. These markets are those involved in the trading of debt and equity
securities.
5. Risk management – a well-skilled financial manager can deter the effects of risks by availing of the
appropriate and adequate insurance for the firm, or by hedging in the derivatives market.

o Alternative Forms of Business of Business Organization

1. Sole proprietorship – is a form of business entity where there is only one owner.
2. Partnership – this exists when two or more persons combine their resources to conduct business,
earn profit and distribute among themselves the results of their operations.
3. Corporation – it is considered as a separate and distinct from its owners and executives.

ACTIVITY #1:
In a one-half sheet of yellow paper, answer the question below.
 In your opinion, what is the best form of business organization to use? Explain your answer.
Take a picture of your answer and send it through the group chat I have created. 