Finance- is concerned with the sourcing
Marketing promotion- marketing
and allocation of scarce resources, which
includes money.
Financial management- covers the
planning, organizing, leading, and
controlling of all financial activities of an
organization
Branches of Finance
1. Public Finance- deals with
collection of taxes and budget
2. Personal Finance- personal
financial planning.
3. Corporate Finance- management
of all financial activities of an
enterprise or a business
organization.
Corporate Finance interrelated areas
1. Financial Markets and Institution-
area covers banks, insurance
companies, finance companies.
2. Investments- area focuses on
investment options and decisions
made by both individual and
corporate investors
3. Financial services- refers to
services offered by organization
4. Managerial (Business) Finance-
Financial Accounting- external, keeps
track of all historical transactions
Managerial Accounting- internal, provides
financial data
Overall financial plan (measurable goals)-
detailed budgets
Different areas of operations in an
organization
1. Research and Development-
creation of new products or
improvements in products
2. Employee Relations- spend on
wages, benefits, learning and
development and activities aimed at
boosting employee morale
3.
activities such as advertising and
promotion
4. Expansion- to expand
5. Meeting contingencies- external
factors: natural calamities, political
problems
6. Government agencies- taxes and
permits and licenses that need to be
processed and paid
7. Asset management- master budget
plan the disposal, saleor acquisition
of fixed assets
Depreciation- decrease in the value
of assets
8. Information System- information
supplied by the different department
heads.
Financial Institution- organization that
handles financial transactions
a. Depository institution- manage
deposited money
b. Nondepository institution- does
not handle deposits
Financial instrument- a document which
signifies a legal or agreement between two
parties.
Common types of financial institution
1. Commercial banks
2. Savings and loans
3. Credit unions
4. Investment banks
5. Insurance companies
6. Brokerage
7. Investment companies
Financial Market- (mechanism) buying
and selling of stocks, bonds and other
financial instruments.
a. Stocks- shares of a corporation sold
to investors
b. Bonds- money loaned
Forms of financial market
1. Physical- new york stock exchange
2. Electronic system- National
Association of
Securities
Dealers
Automated
Quotation
Financial transactions- exchange of funds
between people and organization
Categories of financial market
1. Money market- short term debt
2. Capital Market- long term debt
a. Primary market- new issues of
securities are traded
b. Secondary market- previously
issued securities are traded
Financial intermediaries
saver Borrower
Producer Buyer
Seller Consumer
Investor
supplier
lender
Roles of Financial intermediaries
1. Reduce cost- make transactions
more cost-efficient
2. Diversification- help savers of
funds lower their risk
3. Pooling of funds- gather of funds
from several investor in order to
grant to a single borrower’s loan.
4. Financial Flexibility-offer variety of
financial products
Savings- most common type of financial
product that is offered
Financial statement- a record that gives
snapshot about the firm’s financial health
Stockholder- a person who brought shares
of stocks
Stakeholder- a person who is not
necessarily the owner of the business, but
has interest on how the business performing
Internal stakeholder
1. Employees- focus is their security of
tenure in their company
2. Stockholders- part owners of the
business; conflict with the
employees
3. Top management- employees as
well; most concerned with the quality
of financial data; accountable to the
board directors
4. Department managers- analysis of
financial statement is on the
operational level
5. Board directors- ensure the
financial well being of the company
through the creation of policies
6. Labor union- represent the
employees in negotiations with
employers
Collective bargaining agreement(CBA)-
contract between employer and labor union
External stakeholder
1. Customers- lifeblood of the
business; dealing with firms that
possess a reputation of financial
stability and are ethical in the way
they source and spend funds.
2. Suppliers- sell goods to business
customers
3. Government- review the financial
statement to determine payment of
income taxes
4. Competitors- whose interest is the
activities, over all performance,
strategies, investments and price
movement of his competing industry
5. Financial institution- review
financial statements to see if another
firm applying for a loan is
creditworthy
6. Potential investors- review
financial statements in order to
assess the potential return if they
invest in a business.
Ethics- is a set of rules or norms on what is
right or wrong, good or bad thinking,
behaviour or judgment.
Code of ethics- guides employees to
decide whether a behavior is ethical or
unethical
Ethical issues by finance managers
1. Full disclosure and transparency-
imperative for them to safeguard
highly classified financial records
2. Professional Duty vs company
demands- where employee are torn
between meeting company standard
and ethical standards
3. Individual judgment vs demands
from clients- confronted demand
from clients
4. Misrepresentation- chooses not to
inform the client
5. Conflict of interest- when someone
has self-serving interest that make
him or her an unreliable source.
Generally Accepted Accounting
Principles (GAAP)- maintain the continuity
of information and uniformity of
presentation
Qualitative characteristics
1. Materiality
2. Faithful representation
3. Substance over form
4. Conservatism
5. Understandability
6. Comparability
7. Consistency
8. Verifiability
9. Timeliness
10. Cost constraint
Principle of utmost good faith-
presupposes that parties remain honest in
transaction
International Accounting standards
(IAS)- standards set of how financial
transactions should be recorded and
reflected in financial statement.
International financial recording
standards (IFRS)- to be updated on the
changes
Types of financial statement
1. Balance sheet (financial position)-
firm’s of assets, liabilities and
owner’s equityfor a particular date
2. Income statement- include the
revenue
3. Cash flow statement- report of the
cash received and cash spent
Current assets- can easily be sold or
converted into cash
1. Cash (actual money) and cash
equivalents (easily convertible to
cash)
2. Short term investment
3. Marketable securities- very liquid
short term investment and good
substitute to cash
4. Accounts receivables- represent
products and services sold by the
firm to customers on credit
Preauthorized debt- a payment
system
5. Inventory- includes raw materials,
work in process and product that are
ready to be sold
Fixed assets- not to sell; cannot be easily 6. Financial forecast and budgets- tie
converted to cash everything together

a. Tangible asset- can be physically Internal

seen or touched
b. Intangible asset- not physical asset
Current liabilitites- due within one year or
less
Non current or Long term liabilities- due
more than a year
Owner’s equity- portion that is owned by
shareholders; consist of
a. Capital- owner’s contribution
b. Retained earnings- retained after
payment
“a company is said to be liquid when there
is enough current assets to cover its current
obligation.”
Cash flow from operating activities-
money generated from regular activities of
the firms
a. Strengths- resource that is owned
or controlled by or is available to a
firm
b. Weaknesses- a limitation which
affects firm’s position relative to its
competitors
External
a. Opportunities- a situation that the
firm can take advantage of
b. Threats- unfavourable situation
which may affect the way a firm
does business
Budget- (firm’s financial plan) a statement
of a projected sales, expenses, incomes
and other financial transactions for the
coming period
-tool for planning and for control

Cash flow from investing- the change in a

firm’s cash resulting from investing made

Cash flow from financing activities-

changes in company’s cash position due of
the firm such s raising capital or repayment
of debt.

Strategic plan- grand plan wherein the

overall objectives are set and specific
program are created

Elements of strategic plan

1. Vision statement- the organization
aspires to be in a long term
2. Mission statement- organization’s
core purpose
3. Corporate objectives- outline the
specific goals
4. Corporate strategies- to achieve
the corporate objectives
5. Departmental plans and
programs- operational plan